La demanda de las AFP chilenas: 1993-2002

This paper estimates the demand curves faced individually by each pension fund management firm that serves compulsory saving for old age in Chile, in 1993-2002. These firms –Administradoras de Fondos de Pensiones, AFP- sell their services by retail methods, contacting each client separately. The service is also a subscription service, so demand refers both to the inflow of new subscribers and the outflow of separations. The paper presents two specifications with different degrees of aggregation: a panel where for each firm the rival firms are aggregated together, and a more detailed panel for a specific AFP where rival firms are disaggregated. The specific firm is chosen to be a large AFP whose participants have the highest taxable earnings and may be more informed. In the first panel, the finding for 1993-97 is that the effective elasticity of demand faced by each firm is less tan 1.0 (in absolute value). In the panel for relatively more informed participants, the effective elasticity in 1993-97 was slightly larger tan one, implying an optimal margin of 70% above marginal cost. For the period that starts in December 1997, after important regulatory changes, the effective elasticity for the panel for relatively more informed participants fell to 0.10 and in the other panel remained below 1.0. Together, these results show that in Chile competition between pension funds has occurred without competition in prices throughout 1993-2002, and that competition in prices weakened further after 1998.