Competitive overlap as a signal in expert partner choice: Evidence from patent law firm selection

Research SummaryIn market networks, firms regularly seek partners with needed expertise, but these partners often work with the firms' competitors. How such second-order competitive overlap affects partner selection is unclear. Prior theory assumes firms view networks as "pipes" and emphasizes flows of competitor information via the shared partner as key in partner selection. We propose that firms also view networks as "prisms" and use competitive overlap as a signal of a potential partner's expertise. Hence, firms may prefer partners with competitive overlap. We find support for our claims in the patent law firm selection context. Furthermore, higher competitive overlap leads to slower patent acceptance but results in broader patents, implying that the competitive overlap expertise signal reduces search costs without significant performance loss.Managerial SummaryWhen selecting expert partners like law firms or consultants, some companies may consider avoiding firms that also serve their competitor. However, when little is known about potential partners, this "competitive overlap" might be a way to assess their quality. We found that firms are more likely to choose patent law firms who work with their competitors. This occurs because a competitor's choice signals that partner's expertise. Companies rely on this signal most when they lack direct experience with potential partners or when entering new technological domains. While working with partners who serve competitors might slightly increase processing times, it can increase patent protection without compromising overall performance. These findings suggest that avoiding partners based solely on competitive overlap may limit access to valuable expertise.