Working Paper: NBER ID: w18881
Authors: Justine S. Hastings; Ali Hortasu; Chad Syverson
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.
Keywords: sales force; competition; financial products; pension market; Mexico
JEL Codes: D14; D18; G11; L20; L21; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government-backed competitor (L32) | average fees (D49) |
| price sensitivity (D41) | demand for pension funds (G23) |
| sales force exposure (L85) | management fees (G19) |
| demand-side policies (J68) | fees (M52) |
| sales force exposure (L85) | price sensitivity (D41) |