Monopolistic Business Practices: Opportunities for Entrepreneurs? The Case of the Big Four Accounting Firms

Introduction

Monopolistic business practices (MBPs) are not uncommon, especially in the era of globalization and multinational corporations (Bertoletti and Etro, 2017; Fischer and Normann, 2019). MBPs create market conditions that are unique and often difficult for Small and Medium-Sized Businesses (SMEs), and for new ventures, but may result in a business environment where there are unexpected opportunities for entrepreneurial activity (Cheng and Tabuchi, 2019; Elert and Henrekson, 2016; Salop, 1979).

There are many examples of monopolistic market conditions where new ventures have successfully entered the market successfully, often resulting in considerable disruption. An extensive list is outside the scope of this paper, but a few examples can be identified easily. The duopoly for men’s shaving products in the US, long dominated by Schick and Gillette was entered by two new ventures in the recent years (Esty and Fisher, 2019; Martins, 2019); the Dollar Shave Club, a subscription based online model, and Harry’s also initially and online offering both succeeded in gaining considerable market share and resulted in the two larger firms lowering their prices considerably (Esty and Fisher, 2019).

The commercial aircraft manufacturing industry for medium and large planes, long dominated by Airbus and Boeing, Robertson (2018) competing for market share in the rapidly growing Asian market, He et al. (2017) will soon face pressure from the new venture based in Beijing (Cassagnard and Regibeau, 2018; Zhu et al., 2019).

The mobile phone services market in the US, dominated by another duopoly of ATT Mobility and Verizon Wireless resulted in market conditions where the two were both able to achieve greater value added, and a host of smaller operators were able to successfully enter the market with value and prepaid pricing models (Zhou et al., 2020). This situation also created an opportunity for distant 3^rd and 4^th place carriers Sprint and T-Mobile to join and enter the market as equals to complete with Verizon and ATT (Curwen and Whalley, 2017; Vorobiyenko et al., 2015). This list could go on extensively, the message is that where monopolistic business practices result in prices for consumers that are beyond the fair market value of the products and services offered, there are opportunities for new ventures to successfully enter the market (Elert and Henrekson, 2016; Parenti et al., 2017).

This paper will explore in detail one such market, the accounting and audit services sector, long dominated by the “quadropoly” of the “Big Four” accounting firms; Deloitte, Ernst and Young, KPMG, and PricewaterhouseCoopers.

In this research, an integrated literature review approach was utilized, and it was determined that there are three main causes of monopolies in the accounting and professional services sector: partner’s compensation, revenue-generating purpose and better auditing service and disclosure advice than other smaller accounting firms. These, therefore, are the areas of focus for this paper. A review of various related literature was used to draw conclusions.

This study contributes to the literature in several ways. Most importantly, this study hopes to provide initial evidence on the topic of the reasons for the Big Four’s monopolization in the market. Strong evidence is provided to support the monopolistic practices of the big four which results in such huge market share of the auditing market. The paper also contributes to drawing attention to the need for the Big Four to improve internal control processes.

This paper is organized as follows; Section one, the instruction, the situation and overview. In Section 2, some emerging issues pertaining to the auditing profession are discussed and in section 3, the theoretical contribution is discussed. In section 4, The findings and conclusions are presented.