Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Nov, 2017, Volume 85, Issue 6

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

https://doi.org/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.


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

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

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