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Sales Force and Competition in Financial Product Markets: The Case of Mexico's Social Security Privatization

Sales Force and Competition in Financial Product Markets: The Case of Mexico's Social Security... This paper examines how sales force impacts competition and equilibrium prices in the context of a privatized pension market. We use detailed administrative data on fund manager choices and worker characteristics at the inception of Mexico's privatized social security system, where fund managers had to set prices (management fees) at the national level, but could select sales force levels by local geographic areas. We develop and estimate a model of fund manager choice where sales force can increase or decrease customer price sensitivity. We find exposure to sales force lowered price sensitivity, leading to inelastic demand and high equilibrium fees. We simulate oft proposed policy solutions: a supply‐side policy with a competitive government player and a demand‐side policy that increases price elasticity. We find that demand‐side policies are necessary to foster competition in social safety net markets with large segments of inelastic consumers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Econometrica Wiley

Sales Force and Competition in Financial Product Markets: The Case of Mexico's Social Security Privatization

Econometrica , Volume 85 (6) – Nov 1, 2017

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References (70)

Publisher
Wiley
Copyright
© 2017 The Econometric Society
ISSN
0012-9682
eISSN
1468-0262
DOI
10.3982/ECTA12302
Publisher site
See Article on Publisher Site

Abstract

This paper examines how sales force impacts competition and equilibrium prices in the context of a privatized pension market. We use detailed administrative data on fund manager choices and worker characteristics at the inception of Mexico's privatized social security system, where fund managers had to set prices (management fees) at the national level, but could select sales force levels by local geographic areas. We develop and estimate a model of fund manager choice where sales force can increase or decrease customer price sensitivity. We find exposure to sales force lowered price sensitivity, leading to inelastic demand and high equilibrium fees. We simulate oft proposed policy solutions: a supply‐side policy with a competitive government player and a demand‐side policy that increases price elasticity. We find that demand‐side policies are necessary to foster competition in social safety net markets with large segments of inelastic consumers.

Journal

EconometricaWiley

Published: Nov 1, 2017

Keywords: ; ;

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