Acquihiring for Monopsony Power

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. This paper was accepted by Maria Guadalupe, strategy. Funding: H. Bar-Isaac thanks the Social Sciences and Humanities Research Council of Canada for financial support. V. Nocke gratefully acknowledges support from the German Research Foundation (DFG) through CRC TR 224 Project B03.