Directed matching with endogenous Markov probability: clients or competitors?

Authors


  • The bulk of this research project was done while I was at Boston University, toward which I feel profound intellectual indebtedness. I am deeply grateful to Hsueh-Ling Huynh, Michael Manove, Bart Lipman, Marco Taboga, and Alfonso Rosolia. I also wish to thank editor Jennifer F. Reinganum and two anonymous referees for their numerous suggestions and comments as well as the audiences at the following seminars/conferences: the Boston University Microeconomic Theory Workshop, Boston, spring 2006; the Bank of Italy Economic Workshop, Rome, winter 2007; the Scottish Economic Society Annual Conference, Perth, spring 2007; the fifth annual International Industrial Organization Conference, Savannah, spring 2007; the FUR XIII Conference, Barcelona, summer 2008. I am also grateful to Marco Ferrara (Value Partners) and Giorgio Merli (IBM Consulting) for sharing with me their precious experience in the consulting industry. All remaining errors are mine. Any views expressed in this article are my own and do not necessarily represent those of the Bank of Italy.

Abstract

This article analyzes the practice of opportunistic poaching of consultants by clients, with particular reference to the business consulting industry. The strategic interaction of consulting groups, client firms, and consultants gives rise to a market equilibrium in a mixed economy. Under very general conditions, whenever a match client-consultant is formed, a pure strategy equilibrium exists where the consulting group pleases the client's request and the consultant is poached by the client. Thus, the equilibrium quality of the consulting services market does not depend only on the consulting group's assignment strategy but also on the clients' poaching behavior (consumption externality).

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