Consumer confusion: the choice of pension fund manager in Mexico

The article shows that in markets with “noise”, such as the pension fund manager industry in Mexico, an ample number of competitors may not significantly reduce mark-ups. Utilizing the statistical distribution of the industry's “noise”, the theoretical framework allows for the estimation of the mark-up. The model also indicates that as the number of pension fund managers increases, the mark-up diminishes at a very slow rate. This implies that more participants in the industry will hardly affect prices. The referred hypotheses are confirmed using information of Mexico's pension fund industry. Evidence also indicates that account transfers among pension fund administrators barely respond to price or return considerations, and that switching has not served as a market disciplining tool that would result in lower fees and higher returns for the consumer.