Inside expansion, i studies this new effect away from a lot more battle from the NAS market with the link between NAS restrictions and you may auditor 2’s review quality. Getting brevity, we do not generate interests contrasting and focus towards feeling out of NAS limits on the auditor 2’s review top quality.
To begin with, assume that there’s two NAS opposition in the NAS market: agent step one and you may consultant 2. If there is undifferentiated Bertrand battle, NAS charges was long lasting NAS limitations. Because of this, without distinction regarding the NAS markets, there isn’t any correspondence between the review sector in addition to NAS market. We for this reason introduce NAS markets distinction in 2 different ways. Earliest, we believe that each other auditor dos and you may representative 2 enjoys a good competitive advantage regarding NAS sector (as an alternative, you to definitely consultant 1 have a competitive downside). Second, we think that simply auditor 2 provides a competitive advantage when you look at the the newest NAS markets. Such as this new standard model, we think that new NAS worthy of is not too higher so you can rule out the scenario where client agencies choose auditors to spend less on NAS fees (understand the inequalities for the (A.20) and you will (A great.21) regarding proofs of Proposition 5 and you can Proposition six).
4.dos.1 Aggressive Advantage to possess Auditor 2 and an NAS Competition
We think that the value of NAS having consumer business try when the NAS are supplied because of the consultant step 1, of course NAS are provided by the agent dos or auditor dos, which have trapping high quality differentiation regarding the NAS business. Otherwise, the value of NAS to possess visitors company are , in addition to value of NAS to own buyer corporation is no matter what NAS provider. As opposed to NAS restrictions so you’re able to review website subscribers, there is certainly Bertrand battle from the NAS sector, which implies you to definitely . Since the just before, the introduction of a ban for the selling NAS to review customers influences auditor 2’s review quality solutions.
Proposal 5. If there are two main NAS opposition, and you can each other auditor 2 and you may agent dos possess a competitive advantage throughout the NAS market for serving consumer , NAS limitations in order to review clients drop-off auditor 2’s audit quality, .
When the one another auditor 2 and consultant dos provides an aggressive advantage from the NAS field but there is zero NAS restriction, the three NAS organization was involved with Bertrand battle in the NAS industry and you will auditor 2 earns no NAS lease. Quite the opposite, which have NAS restrictions to help you audit subscribers, the two NAS competitors vie with the review subscribers. In the event the agent 2’s competitive virtue, , is actually well enough very important and auditor dos carries auditing functions to clients and , there’s differentiation on the NAS industry together with two professionals charges confident charges into the audit members. Yet not, if the auditor dos deal auditing attributes in order to buyer business just, there is Bertrand battle and no NAS seller brings in NAS rents. Thus, auditor dos features bonuses to decrease review quality market auditing functions to client agencies whenever you will find NAS constraints to help you audit readers that lets auditor 2 to make NAS rents regarding charging you to help you consumer enterprise .
4.dos.dos Competitive Virtue to own Auditor dos
We have now assume that the worth of NAS provided with auditor 2 to own customer enterprise was , whereas the value of NAS provided by consultant step one otherwise agent 2 to have client business try , where . And this, auditor 2 possess a competitive virtue from the NAS sector.
Instead of NAS restrictions to audit customers, auditor 2 deal NAS to three customer firms on a beneficial payment off . Which have NAS constraints so you can audit subscribers, in the event the auditor dos just offers audit characteristics so you can buyer , after that auditor 2 sells NAS to help you visitors enterprises and also at a good payment out-of . If you don’t, when the auditor dos sells review properties so you’re able to one another readers and you will , after that auditor 2 sells NAS to asexual dating France app buyer business during the a fee out-of . Because of this, NAS constraints so you’re able to review readers may increase audit top quality as the auditor 2’s NAS book is actually huge whenever auditor 2 deal review properties simply to consumer business . This outcome is described throughout the adopting the proposition.
