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

54 Pages Posted: 10 Mar 2013  

Justine S. Hastings

Brown University; National Bureau of Economic Research (NBER)

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Chad Syverson

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: March 2013

Abstract

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.

Suggested Citation

Hastings, Justine S. and Hortacsu, Ali and Syverson, Chad, Sales Force and Competition in Financial Product Markets: The Case of Mexico's Social Security Privatization (March 2013). NBER Working Paper No. w18881. Available at SSRN: https://ssrn.com/abstract=2230770

Justine Hastings (Contact Author)

Brown University ( email )

Box 1860
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ali Hortacsu

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chad Syverson

University of Chicago Booth School of Business ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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