If your company strategy depends on having the "best" talent, then yes, you should replace former best when they are no longer the best. Think Olympics or professional sports as the canonical example.

If your company strategy can work with the vast majority of talent and where some job/company-specific learning is in play (which is the vast majority of companies), then you would naturally prefer an experienced employee to a rank novice. That gives some power advantage to the incumbent employee over a walk-in applicant.

If your company strategy can use nearly anyone and there is no significant learning on the job, then incumbent employees are competing on fairly equal ground with new applicants and it can become a race to the bottom, but it also requires the lowest amount of investment on the part of the employee.

Your job as a prospective employee is to understand what type of company you're considering joining, and to get yourself in the right place on that spectrum, where right is a function of your abilities, aspirations, and preferences. Some like the battle to be the very best. Some like the idea of a lifetime of learning and stable employment. Others prefer (or have thrust upon them) a job where not too much is demanded of them in terms of job-related learning and development.