Working Paper: CEPR ID: DP18376
Authors: Jean-Michel Benkert; Igor Letina; Shuo Liu
Abstract: We study how competitive forces may drive firms to inefficiently acquire startup talent. In our model, two rival firms have the capacity to acquire and integrate a startup operating in an orthogonal market. We show that firms may pursue such acquihires primarily as a preemptive strategy, even when they appear unprofitable in isolation. Thus, acquihires, even absent traditional competition-reducing effects, need not be benign, as they can lead to inefficient talent allocation. Additionally, our analysis underscores that such talent hoarding can diminish consumer surplus and exacerbate job volatility for acquihired employees.
Keywords: acquihire; talent hoarding; startup acquisition; competition
JEL Codes: L41; G34; M13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of acquihire (D26) | resulting efficiency gains or losses for the acquiring firm (G34) |
| type of acquihire (D26) | resulting efficiency gains or losses for the competitor (D61) |
| acquihires (G34) | consumer surplus (D46) |
| type of acquihire (D26) | consumer surplus (D46) |
| talent hoarding (Z22) | job volatility for acquihired employees (J63) |
| talent hoarding (Z22) | consumer surplus (D46) |
| talent hoarding (Z22) | job insecurity for acquihired employees (J63) |
| economic downturns (F44) | job volatility for acquihired employees (J63) |