The first additional problem is that there is no statutory hook for such a limit under Clayton 7 with its forward looking language. Of course, one might believe the Commission’s indications that it would not use its prosecutorial discretion to apply this theory except for in consummated transactions.

But that leads to the second problem. In N-Data, which applied a similar evasion of constraint theory, the Commission indicated that there were some limiting principles there too. One was that the conduct took place in what the FTC viewed as the “special” antitrust domain of standard setting. The second was that it was only going to be a Section 5 case. But what’s happened? We’ve got application of the same underlying economic theory in a non-standard setting case under Section 2 and Section 7.

Students of public choice economics everywhere are yawning at the proposition that regulators were interested in expanding the scope of prosecutorial discretion and that perhaps the “limits” were not so limiting.

The “evasion of a constraint” theory contemplates any conduct that allows a firm to free itself of pre-transaction/conduct prices as actionable. Thus, not only would the LBO transaction story work, but so would advertising (attempt to evade the constraint on pricing that current demand imposes) or just about any other conduct that you can imagine.

Here’s what I wrote previously about the supposed boundaries of this theory:

“Well, if that’s all that the antitrust laws are about, this is easy. Here are a few examples of conduct the FTC could go after that satisfy the “evading a constraint” theory. Why not a monopolist whose pricing is constrained by current demand. That is, the profit-maximizing monopoly price is $20 but the monopolist would REALLY like to charge $25. It is only the fact that current demand is not high enough to support that price that prevents the monopolist from charging it. So, our monopolist comes up with a plan (lets call it a scheme, it sounds worse) to evade the pricing constraint created by current demand by advertising its product to consumers and touting its virtues. Or perhaps its going to invest in the quality of the product. In either event, the purpose of the advertising is to shift the demand to the right and result in higher prices. No matter that output increases, it doesn’t matter because the monopolist is evading a pricing constraint and presumably has violated Section 2. Evading reputational constraints on demand for X is not analytically any different evasion of the constraints imposed on demand by consumer preferences.

But its much worse than that. There is virtually no limit to this evasion theory. Let’s run through some examples. What if Merck evaluated its product line and decided that it would be be better off by dropping some of its product portfolio so that it could increase the price of Indocin? Merck’s decision to drop products from its portfolio, or even the design of those product offerings, are surely an evasion of pricing constraints and a violation of Section 2 if it has monopoly power — and perhaps even if it doesn’t under Section 5. So much for competition as a discovery process. Or what if Merck decided to create a subsidiary to sell Indocin under a different brand name and trade dress to mitigate the reputational costs it would bear from charging a higher price? Or fired the CEO who decided that charging the monopoly price in the first instance would be a bad idea in favor of a new manager who reached a different conclusion and wanted to increase the price? This evasion theory fairly quickly evaporates to the notion that the antitrust law governs prices that are determined to be unreasonable and not the competitive process.”

Just as Ovation did not have the reputational consequences that constrained Merck, an LBO buyer may have an incentive to increase short-term profitability at the cost of long-run growth through more reasonable prices (presumably to allow a quick “flip” or to generate cash flow to pay for financing). I don’t see how those two situations are different in any relevant way, so the LBO should be covered as well.