Turnover and Regulation: The Chilean Pension Fund Industry
AbstractWe study price competition in a model with differentiated products and searching costs. In this model firms charge a price above marginal costs. This positive mark-up gives firms incentive to steal consumers from their rivals. For this purpose, firms hire sales agents that contact customers personally to switch them from one firm to another and offer rewards to the switchers. These rewards can be interpreted as a price cut to rival's customers, which is a form of price discrimination in this model. This model is applied to the Chilean pension funds industry. In 1995 there was more than one sales agent per two hundred customers with a turnover between Pension Fund Administrators of more than 50 percent. This high turnover was associated with large costs, and the authorities reacted by imposing restrictions to switching by the end of 1997. The empirical section of the paper attempts to analyze the role of sales agents in this industry and the impact of such restrictions.
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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 180.
Date of creation: Sep 2002
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-09-21 (All new papers)
- NEP-LAB-2002-09-21 (Labour Economics)
- NEP-LAM-2002-09-21 (Central & South America)
- NEP-REG-2002-09-21 (Regulation)
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