Inside expansion, we study the brand new impact of additional race on NAS markets for the results of NAS restrictions and you may auditor 2’s review top quality. For brevity, we do not build hobbies evaluations and concentrate for the effect out-of NAS limits toward auditor 2’s review top quality.

First off, think that there are 2 NAS opposition on NAS market: associate step one and you may consultant 2. If there’s undifferentiated Bertrand battle, NAS fees try regardless of the NAS limitations. Consequently, instead distinction about NAS business, there’s absolutely no communication between your audit business therefore the NAS markets. I ergo establish NAS market differentiation in 2 different ways. Basic, i think that each other auditor 2 and you will associate dos features a aggressive virtue regarding NAS industry (alternatively, one to consultant step 1 has actually an aggressive drawback). Second, i assume that just auditor dos enjoys a competitive virtue when you look at the the fresh new NAS market. Such as the brand new standard design, we assume that brand new NAS really worth is not all that highest in order to exclude the scenario in which customer providers favor auditors to help you save money on NAS fees (see the inequalities for the (An effective.20) and you may (A great.21) in the evidences away from Offer 5 and you may Suggestion 6).

cuatro.dos.1 Competitive Advantage to own Auditor dos and you can an enthusiastic NAS Rival

We believe that the value of NAS to possess consumer business is actually in the event that NAS are supplied by the agent step one, and if NAS are provided because of the associate 2 otherwise auditor dos, with capturing top quality differentiation from the NAS sector. Otherwise, the value of NAS to own customer business was , and also the worth of NAS getting customer corporation is actually irrespective of NAS supplier. Without NAS restrictions so you’re able to audit clients, there was Bertrand battle on the NAS field, which suggests one . Given that ahead of, the development of a ban toward offering NAS to help you audit clients influences auditor 2’s audit high quality solutions.

Proposal 5. If the there are two main NAS opposition, and you can both auditor dos and you may representative dos have a competitive advantage throughout the NAS marketplace for helping customer , NAS constraints to help you review customers fall off auditor 2’s audit quality, .

If each other auditor dos and you may representative dos possess an aggressive advantage in the NAS sector but there’s no NAS limit, the three NAS team are engaged in Bertrand battle from the NAS field and you may auditor dos produces zero NAS lease. On the other hand, which have NAS limitations so you can audit readers, the 2 NAS competition participate toward review readers. When the associate 2’s aggressive advantage, , are good enough very important and you can auditor dos sells auditing characteristics so you’re able to website subscribers and you will , there was distinction regarding the NAS business and also the one or two specialists charges self-confident costs to your review subscribers. But not, in the event that auditor dos sells auditing functions so you can visitors firm only, there was Bertrand battle no NAS merchant produces NAS rents. Because of this, auditor 2 have hit website incentives to cut back audit top quality market auditing qualities in order to buyer agencies of course discover NAS restrictions so you can audit customers because this allows auditor 2 to earn NAS rents out-of battery charging to buyer agency .

cuatro.2.dos Aggressive Advantage having Auditor dos

We now believe that the value of NAS provided with auditor 2 to possess client business is , whereas the value of NAS provided with consultant step 1 or agent 2 to own consumer agency are , where . And therefore, auditor dos have an aggressive virtue on NAS markets.

In place of NAS restrictions so you can review readers, auditor 2 sells NAS to all the around three buyer enterprises in the good commission of . With NAS constraints to help you review clients, in the event the auditor dos only sells review functions so you’re able to client , after that auditor dos sells NAS so you can consumer firms at a great fee off . Otherwise, when the auditor dos offers audit properties in order to both subscribers and you can , next auditor 2 offers NAS to consumer business at a charge from . As a result, NAS restrictions to help you review readers may increase review top quality given that auditor 2’s NAS lease are large when auditor 2 offers audit functions in order to customer corporation . So it result is summarized throughout the following the proposal.