Acquihiring for Monopsony Power

Acquihiring for Monopsony Power

Justin Johnson

Cornell University - Samuel Curtis Johnson Graduate School of Management

Volker Nocke

University of California, Los Angeles (UCLA) - Department of Economics

Heski Bar-Isaac

University of Toronto - Rotman School of Management

Abstract

It is often argued that startups are acquired for the sole purpose of hiring specialized talent. We show that the goal of such acquihires might be to shut down the most relevant labor market competitor. This grants the acquirer monopsony power over specialized talent. As a consequence, acquihiring may harm employees and be socially inefficient. We explore the robustness of these effects, allowing for private benefits associated with working at a startup, varying bargaining protocols, multiple employees with and without complementarities, and private information.