Directed matching with endogenous Markov probability: Clients or competitors?

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). Copyright © 2011, RAND.