In recent years, the phenomenon where a supplier is simultaneously a customer of the focal firm (“supplier-customer duality”) has attracted considerable attention from the capital market, especially in the IPO market. However, little literature has investigated the motivations and consequences of supplier-customer duality.

Taking A-share listed companies from 2007 to 2020 as the sample, this paper investigates the impact of supplier-customer duality on focal firms’ vertical specialization and its mechanisms. The results show that supplier-customer duality significantly promotes firms’ vertical specialization, and the smaller the power difference between firms and the counterpart, the stronger the positive effect. In addition, the promotion effect of supplier-customer duality on firms’ vertical specialization is mainly achieved by reducing external transaction costs, and this effect is more pronounced in production-based firms, firms with more distance from their suppliers and customers, and firms with longer duration of supplier-customer duality. Further, supplier-customer duality can resist the negative impact caused by supply-chain risks and external environmental risks. Finally, supplier-customer duality improves productivity by promoting firms’ vertical specialization.

The contributions of this paper are as follows: First, it investigates the triadic relationships among suppliers, focal firms, and customers, thereby expanding the literature on supply-chain relationships. Second, it explores the impact of supply-chain triadic relationships on firms’ vertical specialization from the perspective of supplier-customer duality, adding to the literature on factors affecting firm specialization. Third, it sheds light on the bright side of supplier-customer duality, offering new insights for external stakeholders and providing empirical evidence that supports the development of a modern supply-chain system, enhances TFP, and fosters high-quality economic growth.