Economies of Scale and Merger Efficiencies: Empirical Evidence from the Chilean Pension Funds Market
Over the last twenty years there has been a deep concentration process in the Pension Fund Manager (AFPs) industry in Chile (from 21 firms in 1994 to only 6 in 2012). A major concern with the concentration of this industry is that firms might be able to exercise market power. However, significant efficiency gains could result from this concentration process, especially if there are economies of scale present in the industry. The welfare effect of a merger is, therefore, ambiguous. In this paper we estimate the welfare implications of a merger between two medium-sized AFPs in Chile. For this purpose, we estimate the size of the economies of scale in this industry and use the results to simulate the merger using a simple imperfect competition model. The estimations, based on quarterly financial information for the last 8 years of the Chilean Pension Funds system, show robustly the presence of significant economies of scale in operating costs. The merger simulation indicates that despite the cost savings, the merger would induce a small price increase. This effect reduces consumer welfare, but aggregate welfare increases because of the efficiency gains from the economies of scale. Since aggregate elasticity in this industry is zero (because affiliation is compulsory), the price increase does not generate any efficiency loss.
(This abstract was borrowed from another version of this item.)
|Date of creation:||Dec 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Av. Pdte. Errázuriz 3485 - Las Condes - Santiago|
Phone: (56-2) 369 3560
Fax: (56-2) 369 3576
Web page: http://www.uai.cl/RePEc/uai
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gianni De Nicolo & Mary G Zephirin & Philip F. Bartholomew & Jahanara Zaman, 2003. "Bank Consolidation, Internationalization, and Conglomeration; Trends and Implications for Financial Risk," IMF Working Papers 03/158, International Monetary Fund.
- James, Estelle & Edwards, Alejandra Cox & Iglesias, Augusto, 2009. "The impact of private participation and countervailing information on disability costs: evidence from Chile," Journal of Pension Economics and Finance, Cambridge University Press, vol. 8(03), pages 291-320, July.
- Farrell, Joseph & Shapiro, Carl, 1988.
"Horizontal Mergers: An Equilibrium Analysis,"
Department of Economics, Working Paper Series
qt0tp305nx, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- R. G Gelos & Jorge Roldos, 2002.
"Consolidation and Market Structure in Emerging Market Banking Systems,"
IMF Working Papers
02/186, International Monetary Fund.
- Gelos, R. G. & Roldos, Jorge, 2004. "Consolidation and market structure in emerging market banking systems," Emerging Markets Review, Elsevier, vol. 5(1), pages 39-59, March.
- Patricio Arrau & Rómulo Chumacero, 1998. "Tamaño de los Fondos de Pensiones en Chile y su Desempeño Financiero," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 35(105), pages 205-236.
- Werden, Gregory J & Froeb, Luke M, 1994. "The Effects of Mergers in Differentiated Products Industries: Logit Demand and Merger Policy," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 407-26, October.
- Oliver Budzinski & Isabel Ruhmer, 2008.
"Merger Simulation in Competition Policy: A Survey,"
MAGKS Papers on Economics
200807, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
- McAfee, R Preston & Williams, Michael A, 1992. "Horizontal Mergers and Antitrust Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 181-87, June.
- Claudio Agostini & Eduardo Saavedra & Manuel Willington, 2009. "Fusión Procompetitiva y Economías de escala en el Mercado de AFPs," ILADES-Georgetown University Working Papers inv238, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Roy J. Epstein & Daniel L. Rubinfeld, 2002. "Merger Simulation: A Simplified Approach with New Applications," Industrial Organization 0201002, EconWPA.
- Nicola Cetorelli & Beverly Hirtle & Donald P. Morgan & Stavros Peristiani & João Santos, 2007. "Trends in financial market concentration and their implications for market stability," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 33-51.
When requesting a correction, please mention this item's handle: RePEc:uai:wpaper:wp_027. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio A Agostini)
If references are entirely missing, you can add them using this form.