Liberalising audit markets for local government: The five forces at work in England and the Netherlands

Abstract

Both England and the Netherlands have seen efforts to liberalise their audit markets for local government in recent decades. According to economic theory, these should benefit buyers as increased competition produces lower prices and improved quality. Increasing the number of competing audit firms in markets traditionally dominated by few large firms is widely seen as a key ingredient to this process. However, liberalisation has taken different paths in England, compared to the Netherlands. In England, a national-level collaborative purchasing arrangement has seen a small number of large firms competing, whilst in the Netherlands, a free market has led to the withdrawal by Big-4 firms and rapidly growing market share by mid-tier and small firms. In this paper, we analyse contrasting market developments in local public audit in England and the Netherlands and accordingly analyse the underlying factors through applying an established framework for market analysis from industrial economics, Porter's five forces framework, together with an institutional logics approach to further understand the factors involved. We find the Porter framework a useful tool to identify structural differences between markets but one that requires further analysis to explain underlying dynamics, which in the case of Dutch and English local public audit markets is effectively provided by the use of concepts from institutional logics including a historical contingency analysis.