Evidence of non-big 6 market specialization and pricing power in a niche assurance service market

Elliott and Pallais (1997) indicate the importance of finding an appropriat e market niche when entering the assurance services market. They discuss th e notion that the pricing of these assurance services can be based on the v alue of the services to the market, and provide an example of such pricing in a regulatory compliance setting. Auditing requirements in the pension pl an audit market extend beyond those required by GAAS to include assurance r egarding compliance with relevant regulations. Additionally, the Big 6 CPA firms have a fairly small market share (about 10 percent) in this market (C ullinan 1997). The pension plan environment therefore provides an opportuni ty to examine whether smaller CPA firms can establish a "brand name" in a n iche assurance service market to distinguish their expertise, and thereby r eceive higher fees. This study examines the effects of industry expertise o n audit fees in the multi-employer pension plan context. Results indicate t hat non-Big 6 firms with industry expertise (as measured by market share) r eceive fee premiums over nonspecialist firms. Big 6 firms with larger marke t shares do not receive fee premiums in this market. These results suggest that non-Big 6 firms may be able to obtain, and benefit from, market positi ons in certain niche assurance service markets.