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This paper aims to summarize and discuss the motivation behind an investigation recently begun by the Department of Justice Antitrust Division concerning the practices of private equity firms when they are bidding for control of target companies.

Describes the reasons for the Antitrust Division's interest in private equity firms' auction practices; hypothetical auction scenarios that could raise the Division's interest; additional steps the Division could take such as further letters and Civil Investigative Demands; and possible private equity firm defenses and responses to Division theories.

The Division appears most interested in the nature of the “clubs” formed by competing private equity firms to place bids. So, the Division's investigation will likely focus on whether it can bring claims against private equity firms for violations of Section One of the Sherman Act (15 U.S.C. § 15), which prohibits “contracts, combinations and conspiracies in restraint of trade”. Private equity firms can respond to the Division's theories by showing that “club” collaborations are beneficial to competition and actually help streamline the process, resulting in better auction bids.

A useful explanation and update of an investigation in process.

Purpose – To present the connection between modern network theory and Hayek's ideas on the brain and spontaneous orders.

Methodology/approach – To show that Hayek's ideas on the brain, spontaneous order, and why socialism cannot work are confirmed by network and self-organization theory, and to use network and self-organization theory to bridge Hayek's theory of the mind to his work on spontaneous orders.

Findings – Spontaneous orders are scale-free networks, but humans evolved a preference for hierarchical networks, which are typical of tribes and firms – and socialism. However, hierarchies only work for teleological organizations, not for ateleological spontaneous orders like economies. Part of the human preference for human-organized networks comes from our “intentional stance,” which automatically sees patterns as evidence of an organizer.

Research limitations/implications – This work acts as an introduction to possible directions in spontaneous order research. New work in bridging evolutionary and cognitive psychology (which includes Hayek's work) with self-organization and network theory acts as a promising development for neuro-Hayekians.

Social implications – Understanding there is an evolutionary bias for certain kinds of networks, even though those are not appropriate for certain kinds of social orders, and understanding the nature of these networks should help us understand the true relationships among individuals, organizations, and spontaneous orders.

Originality/value of chapter – This work brings Hayek “up to date,” with network theory and self-organization, showing to what extent Hayek was talking about these concepts. Seeing the similarities and differences between hierarchical and scale-free networks helps one understand how they come about, and in what contexts.