Step in the Antitrust Treatment of Restricted Distribution, at 16. It is therefore consistent with Sylvania 's holding that without market power a vertical restraint will not violate the antitrust laws.
One practical reason for a court's reliance on market power is that the weighing required by the rule of reason is extremely awkward to apply. Competitive effects are not susceptible to any kind of numerical valuation, making the Court's task a daunting one. Arquit, Market Power in Vertical Cases, 60 Antitrust L.J. 921, 922 (1992), citing Posner, The Next Step in the Antitrust Treatment of Restricted Distribution: Per Se Legality, 48 Chi. L.Rev. 6, 8 (1981); Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L.J. 135, 155 (1984). The de facto result has been the implicit implementation of a market power screen: if the relevant market is competitive, no participant will possess market power, and any appreciable procompetitive effect will be deemed sufficient to validate the contested restraint. Arquit, Market Power Vertical Cases, at 923; Ginsberg, Vertical Restraints: De Facto Legality Under the Rule of Reason, 60 Antitrust L.J. 67 (1991).
There have only been four cases where the relevant market/market power test has been met;
in two of which the defendant's market share was in excess of 70%, and in one of which a hybrid vertical agreement was involved.
The fourth, the Second Circuit's decision in Eiberger v. Sony Corp., was, in the words of Judge Douglas Ginsberg, an "outlier" case in which the defendant's conduct was found illegal, in spite of possessing merely 12% of the dictation machine market.
From the remainder of the cases, it is clear that, regardless of whether the Court explicitly applied a market power screen as a threshold matter, unless the plaintiff proved and the Court determined that the manufacturer had market power in the relevant market, the rule of reason balanced in the defendant's favor. See, Valley Liquors, Inc. v. Renfield Importers, Ltd., 678 F.2d 742 (7th Cir. 1982); Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 253 U.S. App. D.C. 142, 792 F.2d 210 (D.C. Cir. 1986); and Assam Drug Co. v. Miller Brewing Co., 798 F.2d 311 (8th Cir. 1986)(explicitly requiring a showing of market power); also see, Donald B. Rice Tire Co. v. Michelin Tire Corp., 483 F. Supp. 750 (D. Md. 1980), aff'd, 638 F.2d 15 (4th Cir.), cert. denied, 454 U.S. 864, 70 L. Ed. 2d 164, 102 S. Ct. 324 (1981); Red Diamond Supply, Inc. v. Liquid Carbonic Corp., 637 F.2d 1001 (5th Cir.), cert. denied, 454 U.S. 827, 102 S. Ct. 119, 70 L. Ed. 2d 102 (1981); Muenster Butane, Inc. v. Stewart Co., 651 F.2d 292 (5th Cir. 1981); Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190 (6th Cir. 1982), cert. denied, 466 U.S. 931, 104 S. Ct. 1718, 80 L. Ed. 2d 190 (1984); Cowley v. Braden Industries, Inc., 613 F.2d 751 (9th Cir.), cert. denied, 446 U.S. 965, 64 L. Ed. 2d 824, 100 S. Ct. 2942 (1980); Graphic Products Distributors, Inc., v. Itek Corp., 717 F.2d 1560 (11th Cir. 1983).
In order to determine market power, while the predominant factor appears to be market share, there are numerous relevant factors which the Court must consider, Hayden Publishing Co., 730 F.2d at 68-69, including barriers to entry into the market and the price sensitivity of the market. Posner, Economic Analysis of Law 227-228 (2d ed. 1977). Although market share is not the sole determining factor, it appears that without a certain minimum market share a defendant will not be deemed to possess market power.
In the present case, A-B's market share in New York State grew from 31% in 1981 to 39% in 1989. In this Court's examination of previous vertical restraints, 39% share is below that which has been deemed sufficient to confer market power in any previous decision.
A second factor in the market power inquiry are the barriers to entry. High barriers to entry can effect the ability of new participants to enter the market and result in giving the established participants more power in the market. Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1335 (7th Cir. 1986). These barriers are clearly not a significant factor in New York State beer sales, as is exemplified by Coors' successful entry
and the 10-15 new entrants into the market every year.
If market power is the ability to raise prices and maintain such prices above competitive levels, than a high degree of price sensitivity in a market exemplifies a lack of market power. (Tr. 3363-3364); Package Shop, Inc., 675 F. Supp. at 940. The sensitivity of A-B products to price increases was attested to by numerous witnesses. If a competitor of A-B lowered its price, sales of A-B dropped. (Tr. 1613). If A-B were to raise its prices 10%, it would lose perhaps as high as 60% of its sales. (Tr. 3366-3374). The high level of price competition in the beer market evidences a lack of market power held by A-B.
In sum, the relatively small market share, lack of entry barriers and the intense price competition all lead the Court to the conclusion the State has not proven that A-B possesses market power. Although the practical effect of this finding, especially when combined a showing of some interbrand benefits, would usually dictate a subsequent finding that the defendant's 1982 Agreement is reasonable, Eiberger is binding on this Court. That case, notwithstanding the Court's discussion above, found a non-price vertical restraint unreasonable without finding that the restraint had any effect on the interbrand market, or in other words that the defendant did not possess market power. Eiberger, 622 F.2d at 1081. In light of that holding,
and irrespective of the above findings, a complete balancing of the interbrand benefits against the intrabrand effects of the restraint in question is still necessary.
3. Balancing Test
The circumstances relevant to a rule of reason analysis were summarized by Justice Brandeis in Chicago Board of Trade v. United States, 246 U.S. 231, 238, 62 L. Ed. 683, 38 S. Ct. 242 (1918):
"The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained . . ."