In the main text, we imagine having simplicity you to auditor 2 has only that opponent throughout the NAS field
In this extension, i research brand new impression away from even more race on NAS markets for the results of NAS limits and you will auditor 2’s audit top quality. Having brevity, we do not make welfare evaluations and concentrate toward impression away from NAS restrictions on the auditor 2’s audit high quality.
To start, think that there are 2 NAS opposition on NAS field: associate step 1 and representative dos. If there is undifferentiated Bertrand race, NAS charge are no matter what NAS limits. As a result, in place of differentiation in the NAS business, there is absolutely no communications between the review market while the NAS industry. We hence introduce NAS field distinction in 2 different ways. Basic, i assume that both auditor 2 and you may associate dos provides a great competitive advantage on the NAS industry (rather, that agent 1 features a competitive downside). Next, we assume that just auditor dos has actually a competitive virtue in the new NAS field. As in the fresh baseline model, we believe that the NAS really worth is not very large so you can exclude possible in which consumer enterprises prefer auditors so you can spend less on NAS charges (understand the inequalities for the (A.20) and (Good.21) from the proofs out of Suggestion 5 and you may Offer 6).
4.dos.step one Aggressive Virtue to have Auditor dos and a keen NAS Competition
I assume that the worth of NAS getting consumer business was if the NAS are provided by the consultant step 1, and in case NAS are given of the representative 2 or auditor 2, with capturing high quality distinction about NAS industry. want emo dating app review If you don’t, the value of NAS getting buyer agency was , in addition to worth of NAS to own client business is no matter what NAS supplier. Instead NAS restrictions in order to review website subscribers, there can be Bertrand competition in the NAS industry, which implies you to . Since the ahead of, the introduction of a prohibition towards the offering NAS to help you review readers has an effect on auditor 2’s audit quality choices.
Proposition 5. If the there are two main NAS competitors, and each other auditor 2 and representative 2 have an aggressive virtue on the NAS marketplace for serving buyer , NAS limits so you can audit readers fall off auditor 2’s audit top quality, .
In the event the one another auditor 2 and you may consultant 2 provides a competitive virtue from the NAS business but there is however no NAS limit, the three NAS providers is engaged in Bertrand race about NAS market and you may auditor 2 earns zero NAS lease. On the contrary, with NAS restrictions so you’re able to review readers, the two NAS competitors compete for the audit subscribers. When the consultant 2’s aggressive virtue, , try sufficiently essential and auditor dos carries auditing characteristics so you can subscribers and you will , you will find differentiation regarding NAS field together with two specialists charges positive costs to your audit readers. Although not, if auditor 2 offers auditing functions to help you customer organization only, you will find Bertrand race with no NAS provider earns NAS rents. This is why, auditor 2 possess bonuses to decrease review quality and sell auditing features so you can buyer businesses and if you will find NAS limits in order to audit readers as this lets auditor dos to earn NAS rents off recharging to consumer corporation .
4.2.2 Competitive Virtue getting Auditor 2
We currently assume that the worth of NAS available with auditor dos to own buyer agency try , whereas the value of NAS provided by agent 1 otherwise representative dos to own customer agency is , in which . Hence, auditor 2 has actually a competitive advantage from the NAS markets.
Instead NAS limits to help you audit customers, auditor dos carries NAS to three client organizations during the a percentage out of . Which have NAS limitations so you can audit subscribers, when the auditor dos only sells audit attributes to client , next auditor dos sells NAS so you can client companies and at good payment regarding . If not, when the auditor dos sells review functions in order to one another clients and , upcoming auditor dos carries NAS to client business in the a charge out-of . Consequently, NAS restrictions in order to audit customers get increase audit high quality because the auditor 2’s NAS lease try large whenever auditor 2 offers review properties simply to buyer firm . It outcome is summarized from the following suggestion.