In either case the company risks losing to a more focused company valuing meritocracy and contribution over either nepotism or seniority. And we see this happen when starts rise up to the top. But our current system gives a lot of protection to existing players, be it through regulatory capture or be it through more natural phenomena like brand recognition taking time to decay even in the face of numerous bad products (in the world of games, look at how many people are still looking forwards to TES6 despite the issues with FO76).
There is also some cases where valuing meritocracy is only the best option when employees are willing to leave, but many employees are very stuck to their existing jobs. This is why pay raises do not keep up with the price of new hires. Consider the case where the cost to hire a new employee goes up 6% year over year while the company raises go up 1% year over year, potentially losing out to even inflation. The reasoning is that the extra costs to hire the few people who leave to another company to capture the 5% difference is smaller than the 5% savings for each person who does not leave.
To some extent, unions help to balance out the issue where most people are not perfectly rational actors.
There is also some cases where valuing meritocracy is only the best option when employees are willing to leave, but many employees are very stuck to their existing jobs. This is why pay raises do not keep up with the price of new hires. Consider the case where the cost to hire a new employee goes up 6% year over year while the company raises go up 1% year over year, potentially losing out to even inflation. The reasoning is that the extra costs to hire the few people who leave to another company to capture the 5% difference is smaller than the 5% savings for each person who does not leave.
To some extent, unions help to balance out the issue where most people are not perfectly rational actors.