Intermediary Commissions in a Regulated Market with Heterogeneous Customers

28 Pages Posted: 5 Feb 2018  

Pilar Alcalde

Universidad de los Andes, Chile

Bernardita Vial

Pontifical Catholic University of Chile

Date Written: January 26, 2018

Abstract

We analyze competition among firms within a regulated industry, where intermediaries’ commissions are paid by customers and set exogenously. Firms set their prices taking into account the impact of commissions over the intermediaries’ advice and consumers’ choices. In this setting, the effect of a change in fees on the equilibrium prices and quantities is nontrivial: Under unbiased advice, the reduction of the commission for one product induces consumers to purchase this product more frequently. Under biased advice, however, intermediaries will recommend this product less often and may reduce the demand for it. The model sheds light on the analysis of the retirement market in Chile, where the annuitization rate decreased after a reform that lowered commissions paid by retirees who choose an annuity.

Keywords: intermediation, biased advice, annuity markets

JEL Classification: L11, L15

Suggested Citation

Alcalde, Pilar and Vial, Bernardita, Intermediary Commissions in a Regulated Market with Heterogeneous Customers (January 26, 2018). Available at SSRN: https://ssrn.com/abstract=3110897 or http://dx.doi.org/10.2139/ssrn.3110897

Pilar Alcalde (Contact Author)

Universidad de los Andes, Chile ( email )

Av San Carlos de Apoquindo 2200
Santiago
Chile
+562 26181626 (Phone)

HOME PAGE: http://sites.google.com/site/palcaldee

Bernardita Vial

Pontifical Catholic University of Chile ( email )

Av. Vicuña Mackenna 4860
Macul
Santiago
Chile

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