A model of competitive self-regulation

Abstract

We model a market for professional services such as those offered by lawyers, auditors or conveyancers. Initially the market is served by a single profession with a self-regulatory organization that sets the quality standard for all the members of the profession. We then introduce a second competing profession (e.g. solicitors vs. licensed conveyancers in England) and compare the market outcomes. It is demonstrated that with two professions the prices of the services fall and so does the quality offered by an average supplier. On the other hand, the total supply of quality might actually rise. When the market is served by two professional groups, then the quality of services offered by the higher-tier profession and the total supply of quality are increasing in the size and in the quality of the lower-tier profession.