Startup Noncompetes in the Shadow of Acquihiring

Tsubuteishi, Kyogo (2025): Startup Noncompetes in the Shadow of Acquihiring.

Abstract

Non-compete agreements (NCAs) restrict employee mobility and often play important roles in startups, such as preventing leakage of intellectual property. In this article, I propose an additional role of NCAs in startups as a potential countermeasure to acquihiring by developing a model of labor market competition between a potential acquirer and a startup. In the model, the potential acquirer has two options to hire the startup's employee, direct hiring (poaching) and acquihiring — the acquisition of a company to hire its talented employees. NCAs may either induce or prevent acquihiring by affecting the profitability from each hiring strategy for the potential acquirer. I identify the conditions under which NCAs prevent acquihiring and demonstrate that stricter NCA regulation may distort worker allocation and/or reduce worker welfare. This result indicates that, in the context of high-tech industries where acquihiring is relatively prevalent, increased regulation of NCAs could hurt startups, facilitate acquihiring by Big Tech firms, and ultimately reinforce their market power.

• Item Type: MPRA Paper
• Language: English
• Keywords: non-compete agreement, startup, acquihiring, labor mobility, monopsony, antitrust implications, welfare consequences, waterbed effect
• Subjects: J - Labor and Demographic Economics > J4 - Particular Labor Markets > J42 - Monopsony ; Segmented Labor Markets; K - Law and Economics > K2 - Regulation and Business Law > K21 - Antitrust Law; K - Law and Economics > K3 - Other Substantive Areas of Law > K31 - Labor Law; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M12 - Personnel Management ; Executives; Executive Compensation

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