Timing is Everything? An Empirical Analysis of the Determinants of Service Quality Provision

We utilise a unique database from a large legal services provider to examine how service quality responds to the rm's available capacity, and to the nature of the rm-client relationship. We develop empirical measures of both the (internal) level of resources available to the rm at different points in time, and of the (external) value creation for customers. Our results indicate that service quality increases in the amount of the rm's available resources, suggesting that quality adjustment can be used as a means of tackling capacity constraints. We also find that service quality increases in the number of previous successful interactions with the client, implying that the firm strategically invests in building long-term relationships with clients. By documenting these relationships, we wish to shed light on the limitations of current estimates of consumer surplus in service industries, as well as on potential inefficiencies in such industries.