Should further mergers be allowed? Product differentiation and merger in the external audit market

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Abstract

The external audit market in US is a market with noticeable features: A highly concentrated market, various choice patterns of auditors and the sequential mergers of big auditors over time. There has been growing concern about the impact of mergers and the increasing market concentration. Using a flexible multinomial probit model and micro level data on over 3000 public companies, this article investigates production differentiation and merger in the external audit service market between the Big Four accounting firms. Based on the estimation results of the demand estimates, a model of post-merger conduct is then used to simulate the competitive effects of a merger. The results suggest that merger effects on prices in this market are not significant with no larger than 3%.

Original languageEnglish (US)
Pages (from-to)741-749
Number of pages9
JournalApplied Economics
Volume46
Issue number7
DOIs
StatePublished - Mar 1 2014

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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