High-End Bargaining Problems
William W. Clayton | 75 Vand. L. Rev. 703 (2022) |
Many important areas of the law place great confidence in the ability of contracting parties to bargain effectively. In this Article, I question the wisdom of a formalistic faith in bargaining by identifying flaws in the bargaining process at the high end of the market, where parties are sophisticated and have substantial resources to aid them in bargaining.
My analysis focuses on the private equity fund industry, which is widely regarded as one of the most elite contracting spaces in the market. Because of rigorous investor qualification laws and other distinctive features of private equity funds, this industry enjoys many advantages compared to most real- world contracting settings. A careful review, however, reveals issues. Drawing on proprietary survey data and dozens of conversations with industry participants, this Article offers an in-depth analysis of bargaining problems in private equity funds.
These bargaining problems raise a difficult question for scholars and policymakers: If optimal bargaining outcomes and processes are elusive in this high-end market and ongoing SEC intervention is needed, what can realistically be expected across the broader spectrum of real-world contracting settings? These findings provide a striking illustration of the fact that bargaining cannot simply be assumed to produce optimal outcomes in real- world environments. Acknowledging this reality has significant implications for securities law, the law of business organizations, and contract law.
William W. Clayton