Private equity clubs and auction rules

I wrote last October about Justice's looking into the question of "when do bidding practices in the market for corporate control violate the antitrust laws?"

Today the WSJ brings news that "GE has told a handful of private-equity firms contacted about the possible plastics-unit sale that they face restrictions on their ability to team up with other private-equity bidders."

This seems to be at least a partial solution to any problem. It works best when a firm initiates an auction, but seems feasible whenever a firm finds itself in play. In other words, unlike other antitrust settings, the "goods" being sold have the power to set the competitive conditions of their sale.

Maybe we won't always see these restrictions. But do we want to? The article points out that "although similar restrictions have been tried in the past, they have often been dropped as auctions proceeded and no single bidder proved willing to put up a large enough sum."

So companies need to consider which auction procedure maximizes the price. And if they don't impose restrictions, perhaps we can assume they don't want them.

Why wouldn't this contractual approach beat one-size-fits-all banning of clubs?  Or how about a default rule that targets could contract out of by setting bidding rules?