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

Justine S. Hastings, Ali Hortaçsu, Chad Syverson

NBER Working Paper No. 18881
Issued in March 2013, Revised in April 2017
NBER Program(s):Economics of Aging, Industrial Organization, Public Economics

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.

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Document Object Identifier (DOI): 10.3386/w18881

Published: 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 citation courtesy of

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