What If There Were Three? Audit Pricing within the Big 4 and the PricewaterhouseCoopers' Premium in the Australian Audit Market

Abstract

This paper examines intra‐Big 4 audit fee premiums in the Australian market. During the period examined (2002–2004), there is both Big 4 and intra‐Big 4 market dominance. The three largest firms – the ‘Big 3’ (Ernst & Young, KPMG and PricewaterhouseCoopers) – hold over 80 per cent of audit fees for companies listed on the Australian Securities Exchange. We find the main feature of the Australian audit market over this period is a PwC brand premium, which suggests price competition and thus no collusive pricing. Within the Big 4, audit pricing effects are likely to be a growing area of inquiry in future audit pricing literature. Overall, our study implies that regulatory concerns about a lack of a competition in the audit market during this period are inconsistent with the audit pricing evidence.