Sales Force and Competition in Financial Product Markets: The Case Of Mexico's Social Security Privatization
This paper examines how sales force impact 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 which 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.
An data appendix is available at http://www.nber.org/data-appendix/w18881
This paper was revised on August 27, 2015
Document Object Identifier (DOI): 10.3386/w18881
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