In early 2022, prices of unpackaged, ”curah” cooking oil in Indonesia had almost reached IDR 21.000, a 40 % increase from its normal price of IDR 15.0001. This is a huge issue as Indonesia is the world’s largest palm oil consumer, consuming over 15 tons per year2. Though oil prices had recently gone down, the issue of price fluctuations had been a constant issue accross human history, both in the real and financial market. Each case has their own reasons, whether it is an intentional market manipulation, or simply a natural change of supply or demand.

Against this issue, Islam has its own principles in dealing with market forces. Islam puts market force as the main determinant of prices, but also has certain prohibitions and instruments to prevent market distortion. This article explores the concept of price in Islam, and how the sharia and Islamic economy controls prices and the market. This article starts with examining the concept of prices in mainstream economy, especially within the market economy. Then, we look at the concept of price in Islam, and how the sharia safeguards the market. Finally, we try to see what the price and market control instruments of Islam are and how they impact the market.

According to Cambridge, price is the amount of money for which something is sold. Price also serves as a measure of value, as the amount that people are prepared to pay for a product represents its value3. Price, or the market force, is the main influence which impacts the market economy, where it is believed that the best outcome is obtained from buyers and sellers acting individually and independently through price. 

In a market economy, price serves to send signals and provide incentive⁵. Price would send signals to buyers and sellers on the relative scarcity of a good or service. Price would also either give a positive or negative incentive towards buyers or sellers. For example, the signal created from high demand would result in an increase of prices, and this would incentivize producers to increase output. 

The above example is an example of how the price mechanism works. The market economy system is based on the principle that only by freeing the movement of prices can supply match demand³. Excessive supply or lack of demand would lower price and production, which increase prices until there is a balance between supply and demand. The same principle also happens when supply is inadequate or excess in demand, as prices would decrease and this movement would lead to another equilibrium. 

However, in the real economy, a totally free price mechanism does not exist. There are many distortions which reduce the impact of price in determining supply and demand. These include monopoly, government intervention, and others³. These distortions are not inherently bad, as Adam Smith himself stated that without morality and government intervention, pure markets could create market failure in a number of areas with real social consequences⁴. These include price gauging, inequalities, discrimination, and broken social systems. 

Therefore, government interventions are needed as the market needs a ”referee” which enforces market rules and contains negative fallouts⁴. In practice, market or capitalist economies actually are a mixed system, which are influenced by government participation and intervention, instead of a pure market system. These interventions include enforcement of property rights and contracts, as well as business regulation and supervision. 

However, markets and prices can be distorted by market manipulation, which means artificially affecting the demand and supply of an item, and many of these happen in the financial market⁶. These manipulations not only affect prices and transactions in one market, but affect capital allocation, investment, and savings in other markets and the overall economy⁷. Moreover, methods of market manipulation continue to evolve, especially in an evolving financial market. For example, in addition to analog, human-based traditional market manipulation such as pump and dump, newer, electronic and high-tech manipulation methods, such as pinging and spoofing have emerged in recent times. 

There are also other systems outside of the market economy. In a centrally planned economy, the price mechanism can be supplanted by the government for political or social reasons³. A central authority would decide what goods would be produced, as well as the output of each final and intermediate goods on services. As the central authority determines prices and income, which represents purchasing power, they function as how the market influences the market economy. In practice, it’s hard for a central authority to predict demand or decide the most efficient method of production, and this system would also disincentivize the private sector, making it difficult to develop a thriving economy.

With today's rapid technological developments, the digital marketplace has also emerged. It is a platform that facilitates transactions between buyers and sellers over a product or service. It connects prospective purchasers of a service or product with sellers of that service or product. A digital marketplace acts as a go-between for buyers and sellers. It does not possess the assets. 

There are two main aspects to pricing the marketplace aspect of the platform's value proposition. The first aspect relates to the mechanisms used to actually price the services or products being traded in marketplaces, while the second, the so-called "take rate," refers to the proportion of the trade value that the marketplace-platform owner will take in exchange for its facilitation, lead generation, and other services.

If the market is highly competitive, there may be an ongoing force driving take rates towards a common value. If the market is also subject to a winner-take-all form of competition, the pricing wars that may result from it — either as a result of an initial land-grab or as a result of a focus on retention over the long term — will likely result in the lowest possible take rates. This will determine the market power in the digital market

According to OECD, in the digital market, the core economic foundations of market power assessments have also remained consistent, namely a focus on entry barriers and substitutability8. What distinguishes the evaluation of digital market power from more traditional sectors? First, market shares, which have never been sufficient evidence of market power (or lack thereof) on their own, may provide an even less complete picture. They fail to account for the potential for rapid monopolization of markets, accelerated by network effects. They also run the risk of overemphasizing conditions within defined product markets without taking into account the possibility of dynamic competitive pressure or the absence of potential competitors in related markets. In addition, when digital markets are multi sided, and especially when they offer free products, no single market share metric can adequately capture the market's realities. 

Secondly, certain market characteristics contribute to the market power of digital firms in novel ways. In dematerialized digital markets, network effects, which have traditionally been considered in terms of physical infrastructure and capacity constraints, have taken on an entirely new dynamic. The ability of consumers to maintain multiple residences is also prominently featured, as it may be an important mechanism for facilitating market entry and competition. Moreover, linkages between products (and the corresponding ability to leverage market power across markets) have been a growing area of interest for authorities, given the significance of ecosystem business models and conditions in digital markets that may exacerbate the risk of harm.

The overall Islamic economic system is a market based system, meaning that prices are determined by demand and supply. Prices are considered fair if it emerges from market forces without interference, as this would avoid injustice on both supplier and buyer⁹. This concept of fair price also means that in cases of natural rising prices where the market operates normally, such as natural scarcity and demand increase, the state has no right to fix prices^{10, 11}. The following hadith describes the concept of prices in Islam and actually describes fixing prices as an injustice: 

The people said: “Messenger of Allah , prices have shot up, so fix prices for us”. Thereupon the Messenger of Allah (PBUH) said: “Allah is the one Who fixes prices, Who withholds, gives lavishly and provides, and I hope that when I meet Allah, none of you will have any claim on me for an injustice regarding blood or property.” (HR. Abi Dawud 3451)¹²

On the other hand, a market based economy does not mean that the state does not have a role in an Islamic market. Islam recognizes the state as a social authority to prevent exploitation and moral degeneration⁹. Specifically regarding the market, the state should be obliged to have an overseeing and surveillance role which ensures market forces operate and stakeholders do not exploit each other¹¹. Therefore, the challenge is that the state should try to uphold Islamic principles while optimizing freedom and initiative in the private sector⁴. For example, during the reign of caliph Umar, prices had risen due to short supply, but instead of fixing prices, he instructed his governor in Egypt to send supplies to lower prices⁹. 

Beyond utilizing market forces, Islam as religion create justice and fairness in prices and the market by ensuring compliance with sharia rules⁴. This goes in hand with the following verse: 

وَلَوْ أَنَّ أَهْلَ ٱلْقُرَىٰٓ ءَامَنُوا۟ وَٱتَّقَوْا۟ لَفَتَحْنَا عَلَيْهِم بَرَكَـٰتٍۢ مِّنَ ٱلسَّمَآءِ وَٱلْأَرْضِ وَلَـٰكِن كَذَّبُوا۟ فَأَخَذْنَـٰهُم بِمَا كَانُوا۟ يَكْسِبُونَ 

And if only the people of the cities had believed and feared Allāh, We would have opened [i.e., bestowed] upon them blessings from heaven and the earth; but they denied [the messengers], so We seized them for what they were earning. (Quran 7:96)

To achieve this, the Sharia goes beyond aiming for growth, such as by protecting property rights, enforcing contracts, and creating good governance. Also, Islam also have rules for seeking knowledge, avoiding waste and harm, incentivizing work, and prohibiting fraud, cheating, and others. Compliance to these rules would prevent distortions and ensure an efficient market and a balanced economy. 

Therefore, instead of fixing prices, Islamic law and civilizations aims to ensure that the market runs smoothly through upholding sharia compliance. For example, past islamic states had the institution of hisbah, which aims to enforce what is good and prevent unlawfulness in both worship and financial behavior¹¹. The Hisbah would also ensure that all activities and transactions are within Islamic rules and observe moral and ethical values of Islam¹². Compared to today, the hisbah functions like a department of trade and industry, a central auditing office, as well as a religious function.

To protect the market from distortion, the sharia has multiple instruments and prohibitions which help safeguard the market. This is part of how Islam protects fair dealings and justice⁹, as the Quran stated below: 

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ كُونُوا۟ قَوَّٰمِينَ لِلَّهِ شُهَدَآءَ بِٱلْقِسْطِ ۖ وَلَا يَجْرِمَنَّكُمْ شَنَـَٔانُ قَوْمٍ عَلَىٰٓ أَلَّا تَعْدِلُوا۟ ۚ ٱعْدِلُوا۟ هُوَ أَقْرَبُ لِلتَّقْوَىٰ ۖ وَٱتَّقُوا۟ ٱللَّهَ ۚ إِنَّ ٱللَّهَ خَبِيرٌۢ بِمَا تَعْمَلُونَ 

O you who have believed, be persistently standing firm for Allāh, witnesses in justice, and do not let the hatred of a people prevent you from being just. Be just; that is nearer to righteousness. And fear Allāh; indeed, Allāh is [fully] Aware of what you do. (Quran 5:8)

In safeguarding the market, Islamic Economy has one further level of filter than the market mechanism, which is a moral filter¹⁴. This filter functions to shift individual preferences to be in accordance with social preferences, creating harmony between self and social interest. The Hisbah would be the institution in charge of upholding this filter¹³. To realize this, Islam modifies individual self interest by stretching it to the hereafter, which makes self interest can only be served by fulfilling social obligations. Together with the market filter, this would create a new equilibrium that is consistent with normative goals. 

Another method is the prohibition of hoarding or ihtikar. Ihtikar means hoarding commodities and resources in order to create artificial scarcity and increase prices^{9, 4}. The prophet has forbidden hoarding and calls those who hoard sinners. Beyond hoarding commodities, hoarding wealth is also disincentivized, as this will prevent an optimal circulation of wealth. Islam pushes people to invest in the real economy through Islamic finance products such as sukuk, and penalizes hoarding through zakat, which functions as a wealth tax¹⁵. 

Islam also values maintaining free and transparent information and disclosure in the market, as all parties in the market should have information on the product. One example is the prohibition of Tallaqi Rukban, or interfering with supply before entering the market4. This practice would prevent the seller from selling with the market price. Another example is prohibition of deception or inaccurate information, where the prophet had told a seller of a hidden wet grain that people who deceive others are not one of his kind8. 

Islam also prohibits market manipulation through the prohibition of najash, which is bidding up prices without the intention to purchase⁹. This creates a false increase in demand which would impact price and further demand. Najasy is similar to many forms of modern market manipulation, such as pinging, which is making a large number of small orders to a financial instrument and canceling it to induce others to react and disclose their trading intentions⁷. 

Other than prevention laws through the above prohibitions, the Sharia also has countermeasures for contracts which had been done in the form of khiyar. Khiyar is an option to cancel a contract, and there are many forms of khiyar for different circumstances⁸, including breach of trust. These are forms of khiyar in case of breach of trust¹⁵: 

1. Khiyar taghrir are option for verbal deception, including the aforementioned najash or innacurate information 
2. Khiyar tadlis is for deceptive conduct such as counterfeits and hiding good condition 
3. Khiyar ghabn is used for price gouging, such as the aforementioned tallaqi rukban and collusions to create price spikes 

Other types of khiyar include a time-based agreement, non-payment option, inspection option, and option while still in the contracting session. All this creates further protection for the buyer, especially on instances of breaches of trust. 

One interesting case in Islam is regarding Monopoly, which is generally regarded as inneficient and is regulated to prevent inequity and high prices⁴. However, monopoly itself is not regarded as a sin in Islam, but the purpose and consequence of it would characterise it as being sinful or not¹¹. If a producer or seller becomes the only one in the market, they would not be sinful unless they use their monopolistic position to influence the market. From an economic perspective, Bendjilali and Tahir (1990)¹⁶ shows that even in a monopoly, allocation efficiency and equity is possible if the monopolist complies with Islamic rule and behavior.

Price is an essential concept as it serves as a measure of value and the price mechanism forms the basis of how the market economy works. However, the pure market economy does not actually exist as government intervention as the referee is needed. Islam also utilizes the market mechanism as the primary price determinant, and focuses on how to create compliance towards sharia law in order to safeguard the market. Furthermore, Islam has many instruments and prohibitions to help control market prices and prevent market distortion. These include a moral filter, prohibition of hoarding and other market manipulations, maintaining free information, and cancellation options in both conventional markets and in digital marketplaces.