Econometrica: Nov 2017, Volume 85, Issue 6

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

DOI: 10.3982/ECTA12302
p. 1723-1761

Justine Hastings, Ali Hortaçsu, Chad Syverson

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.

Log In To View Full Content

Supplemental Material

Supplement to "Sales Force and Competition in Financial Product Markets: The Case of Mexico’s Social Security Privatization"

This zip file contains replication files for the manuscript.

Read More View ZIP


Supplement to "Sales Force and Competition in Financial Product Markets: The Case of Mexico’s Social Security Privatization"

This online appendix contains material not found within the manuscript.

Read More View PDF


Back