CACI 3412 Rule of Reason—Market Power Explained

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

“Proving that a restraint has anticompetitive effects often requires the plaintiff to ‘ “delineate a relevant market and show that the defendant plays enough of a role in that market to impair competition significantly,” ’ i.e., has market power.” (In re Cipro Cases I & II (2015) 61 Cal.4th 116, 157 [187 Cal.Rptr.3d 632, 348 P.3d 845].)

“ ‘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 substantial percentage of the sales in a market carefully defined in terms of both product and geography.’ ” (Redwood Theatres, 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 Theatres, Inc., supra, 200 Cal.App.3d at pp. 706–707, footnote omitted.)

Secondary Sources

1 Witkin, Summary of California Law (11th ed. 2017) Contracts, §§ 602–621
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, § 565.74 (Matthew Bender)
1 Matthew Bender Practice Guide: California Unfair Competition and Business Torts, Ch. 5, Antitrust, 5.05, 5.11, 5.17–5.22