We analyze the problem of strategic poaching of consultants by clients with particular reference to the business consulting industry. This article studies the strategic interaction of consulting groups, client firms and consultants, which gives rise to a market equilibrium in a mixed economy. At each date the consulting group faces a new client firm that requires a task to be performed. 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 depend only 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.
Published in 2011 in: The RAND Journal of Economics, v. 42, 1, pp. 92-120
