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Extracting value from client relationships: competition, expertise and cross-selling in the UK corporate legal market

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How do suppliers capture the value they create with their clients? In this paper, I empirically examine the role of two drivers of suppliers' value capture for supplier profitability and buyer-supplier relationship stability. The first driver is the distinctiveness of suppliers' expertise compared to what their clients can get from competitors. The second driver is the realization of client-based scope economies through cross-selling. I analyze a unique longitudinal data set from the UK corporate legal market that comprises the client relationships of the largest UK law firms with FTSE 250 corporations, experts' assessment of law firms' capabilities, and law firms' profitability. I find that superior expertise relative to direct competitors and cross-selling, both by a focal firm and by its competitors, is an important driver of supplier profitability and client relationship stability. Moreover, cross-selling appears to be an important source of differentiation that also has a direct impact on competitors' ability to capture value. Overall, these findings contribute to our understanding of how competition and firm heterogeneity interplay to affect firm performance.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2007/2007-23.pdf

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Copyright INSEAD. All rights reserved