California Civil Jury Instructions (CACI)

3412. Rule of Reason - "Market Power" Explained

Market power is the ability to increase prices or reduce output without losing market share. The higher a seller's market share, the more likely it has market power.

In deciding whether a seller has market power, you should consider how difficult it is for a potential competitor to successfully enter the market. The more difficult it is to successfully enter a market, the more likely a seller has market power within that market. Market power is less likely to exist if it is not difficult for potential competitors to enter a market successfully.

Each market has two components: a product market and a geographic market.

Directions for Use

See instructions that follow explaining the concepts of product market and geographic market: CACI Nos. 3413, Rule of Reason—"Product Market" Explained, and 3414, Rule of Reason—"Geographic Market" Explained.

Sources and Authority

"[C]ase law holds that the need to prove market power is a threshold consideration in an antitrust case and is the sine qua non of recovery." (Exxon Corp. v. Superior Court (1997) 51 Cal.App.4th 1672, 1681 [60 Cal.Rptr.2d 195], footnote omitted.)

" 'To meet his initial burden in establishing that the practice is an unreasonable restraint of trade, plaintiff must show that the activity is the type that restrains trade and that the restraint is likely to be of significant magnitude. . . . Ordinarily, a plaintiff to do this must delineate a relevant market and show that the defendant plays enough of a role in that market to impair competition significantly.' " (Roth v. Rhodes (1994) 25 Cal.App.4th 530, 542 [30 Cal.Rptr.2d 706], internal citations omitted.)

"As a practical matter, market power is usually equated with market share. 'Since market power can rarely be measured directly by the methods of litigation, it is normally inferred from possession of a ubstantial percentage of the sales in a market carefully defined in terms of both product and geography.' " (Redwood Theaters, Inc. v. Festival Enterprises, Inc. (1988) 200 Cal.App.3d 687, 704 [248 Cal.Rptr. 189], internal citation omitted.)

"By reducing the substitutability of products, a high level of product differentiation results in relative inelasticity of cross-product demand. This inelasticity creates opportunities for suppliers to manipulate the price and quantity of goods sold or to entrench their market position by creating barriers to entry in a market." (Redwood Theaters, Inc., supra, 200 Cal.App.3d at pp. 706-707, footnote omitted.)

Secondary Sources

1 Witkin, Summary of California Law (9th ed. 1987) Contracts, §§ 575- 590

1 Antitrust Laws & Trade Regulation, Ch. 12, The Per Se Rule and the Rule of Reason, § 12.03 (Matthew Bender)

3 Levy et al., California Torts, Ch. 40, Fraud and Deceit and Other Business Torts, § 40.168 (Matthew Bender)

49 California Forms of Pleading and Practice, Ch. 565, Unfair Competition (Matthew Bender)

(New September 2003)