In the main text, i imagine getting ease you to definitely auditor 2 has only that opponent on the NAS market
In this expansion, we analysis the impression out-of a lot more race on NAS field into outcomes of NAS constraints and you may auditor 2’s review high quality. To own brevity, we really do not build interests comparisons while focusing into the perception out-of NAS constraints on the auditor 2’s review high quality.
First off, believe that there have been two NAS competition regarding NAS sector: associate step 1 and you will associate dos. If you have undifferentiated Bertrand battle, NAS charge try whatever the NAS limitations. This means that, without distinction from the NAS market, there is no communications between your audit sector while the NAS field. We thus establish NAS markets distinction in 2 various methods. First, i assume that both auditor dos and you will representative dos possess an excellent competitive advantage about NAS sector (rather, that consultant 1 provides an aggressive downside). 2nd, i think that just auditor dos possess a competitive virtue for the new NAS business. As with new baseline model, we believe that this new NAS worth is not very high in order to exclude happening in which buyer providers prefer auditors to help you reduce NAS fees (see the inequalities into the (A great.20) and you may (A great.21) regarding proofs regarding Suggestion 5 and you may Suggestion 6).
4.2.step one Competitive Advantage to own Auditor dos and you will a keen NAS Competitor
We think that the worth of NAS for consumer company are in the event that NAS are provided of the representative step one, while NAS are given from the agent 2 or auditor dos, having trapping high quality differentiation regarding NAS business. If not, the value of NAS to possess client organization is actually , together with value of NAS for customer firm are aside from NAS vendor. Instead NAS restrictions so you’re able to review readers, there was Bertrand race on the NAS sector, which implies that . Given that prior to, the development of a prohibition toward promoting NAS to audit subscribers has an effect on auditor 2’s audit quality solutions.
Suggestion 5. If there are 2 NAS competitors, and you may both auditor 2 and associate dos keeps an aggressive advantage throughout the NAS marketplace for offering customer , NAS limits to help you review customers drop-off auditor 2’s audit top quality, .
In the event that one another auditor 2 and you will consultant 2 enjoys a competitive advantage from the NAS markets but there is zero NAS restriction, the 3 NAS company are engaged in Bertrand battle on the NAS business and you will auditor dos earns zero NAS lease. Quite the opposite, with NAS constraints to help you audit readers, both NAS competitors vie to the audit readers. In the event the representative 2’s aggressive virtue, , was well enough essential and you may auditor dos deal auditing characteristics to help you subscribers and you will , there clearly was differentiation regarding NAS field as well as the two professionals charge self-confident fees toward audit subscribers. But not, when the auditor dos deal auditing characteristics so you can customer organization only, discover Bertrand battle no NAS provider earns NAS rents. As a result, auditor 2 have bonuses to reduce audit top quality market auditing characteristics so you can visitors providers of course discover NAS constraints so you can review readers since this lets auditor 2 to make NAS rents out of asking so you can client corporation .
4.dos.2 Aggressive Virtue for Auditor 2
We have now assume that the worth of NAS provided by auditor 2 getting customer business is , while the value of NAS provided with representative step 1 or associate 2 to have customer enterprise are , where . And this, auditor dos has an aggressive virtue in the NAS sector.
In the place of NAS limitations in order to review subscribers, auditor dos sells NAS to all or any around three customer organizations at the good payment out of . Having NAS limitations so you can review clients, if the auditor 2 simply offers audit features to help you visitors , following auditor 2 offers NAS in order to customer firms at good percentage out of . If not, if auditor 2 deal audit features in order to both website subscribers and you will , then auditor dos carries NAS in order to client organization at a charge regarding . This is why, NAS restrictions so you’re able to review customers will get improve audit top quality as the auditor 2’s NAS rent try large when auditor dos offers audit attributes merely to customer firm . It outcome is summarized in the following offer.
