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Directed matching with endogenous Markov probability: clients or competitors?

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  • Emanuela Ciapanna

Abstract

We analyze the problem of strategic poaching of consultants by clients with particular reference to the business consulting industry. This article presents a market equilibrium in a mixed economy where three categories of agents, consulting groups, client firms and consultants strategically interact with each other. At each date the consulting group faces a new client firm that requires a task to be implemented. We show that under very general conditions, when a matching pair of clients and consultants meets, a dominant strategy will be played, where the consultant is captured by the client and the consulting group matches (whenever possible) the client's request. The novelty of this model is that the quality of the consulting services does not only depend on the consulting group's assignment strategy , but also on the capturing behavior of the clients. In this sense, the clients impose a consumption externality on each other, which is a source of inefficiency in this otherwise competitive market.
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Suggested Citation

  • Emanuela Ciapanna, 2011. "Directed matching with endogenous Markov probability: clients or competitors?," RAND Journal of Economics, RAND Corporation, vol. 42(1), pages 92-120, March.
  • Handle: RePEc:bla:randje:v:42:y:2011:i:1:p:92-120 DOI: j.1756-2171.2010.00127.x
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    File URL: http://hdl.handle.net/10.1111/j.1756-2171.2010.00127.x
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
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    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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