Rising and Changing Professional Knowledge as Barriers to Entry

Applying a partial equilibrium model, this paper examines the role of the rate of increase in the level of professional knowledge and the role of the rate of replacement of "old" for "new" knowledge on the equilibrium concentration level in a market for professional services. The two main results provide the conditions for ‘no-entry' and ‘no-exit' equilibrium. These conditions provide a plausible rationalization for concentration in the high-level market for professional services. In this paper we use data pertaining in particular to the high-level market for auditing services. The generality of our results suggests that a similar model can be utilized to illuminate concentration phenomena in additional markets for professional and related services.