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Directed Matching with Endogenous Markov Probability: Clients or Competitors?

Listed author(s):
  • Emanuela Ciapanna

    ()

    (Bank of Italy, Economic Research Department)

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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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2008/2008-0665/en_tema_665.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 665.

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Date of creation: Apr 2008
Handle: RePEc:bdi:wptemi:td_665_08
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  1. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
  2. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2b, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, September.
  4. David H. Autor & Susan N. Houseman, 2010. "Do Temporary-Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from "Work First"," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 96-128, July.
  5. Thomas Gehrig, 1993. "Intermediation in Search Markets," Discussion Papers 1058, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
  8. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-1260, December.
  9. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  10. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, vol. 73(2), pages 481-516, 03.
  11. David H. Autor, 2000. "Why Do Temporary Help Firms Provide Free General Skills Training?," NBER Working Papers 7637, National Bureau of Economic Research, Inc.
  12. Edward Simpson Prescott & Robert M. Townsend, 2003. "Mechanism design and assignment models," Working Paper 03-09, Federal Reserve Bank of Richmond.
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