Market power and audit market collusion: the Spanish case

Purpose The purpose of this paper is to analyse whether the major international audit firms reach collusive agreements in Spain, in order to exercise market power and impose higher prices than those of competitors. According to the traditional theory of oligopoly, the ability to achieve these agreements is dependent primarily on the high level of market concentration, so that multiple studies have analysed the relationship between concentration and prices. However, the concentration has serious limitations to infer collusion and therefore the exercise of market power (Dedman and Lennox, 2009). Design/methodology/approach Based on an alternative current of the theory of industrial organisation, the authors use measures of industrial mobility as a measure of collusion or rivalry of firms in oligopolistic markets. Findings The results reveal that international audit firms do not reach collusive agreements to limit competition between them. Social implications According to the empirical evidence obtained, the measures taken by the regulatory bodies to avoid market concentration would not be necessary or efficient and they would have significant costs for the audit market (GAO, 2003, 2008; FRC, 2009; European Commission, 2010; Competition Commission, 2013). Originality/value To the authors’ knowledge, this is the first study to introduce mobility measures to explain market collusion and the exercise of market power in the audit market.