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Turnover and Regulation: The Chilean Pension Fund Industry

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  • Solange Berstein
  • Alejandro Micco

Abstract

We 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.

Suggested Citation

  • Solange Berstein & Alejandro Micco, 2002. "Turnover and Regulation: The Chilean Pension Fund Industry," Working Papers Central Bank of Chile 180, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:180
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    References listed on IDEAS

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    Cited by:

    1. Solange Berstein & José Luis Ruiz V, 2005. "Sensibilidad de la Demanda con Consumidores Desinformados: El Caso de las AFP en Chile," Working Papers 4, Superintendencia de Pensiones, revised Apr 2005.
    2. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2006. "Financial development in Latin America : big emerging issues, limited policy answers," Policy Research Working Paper Series 3963, The World Bank.
    3. Heinz Rudolph & Hela Cheikhrouhou & Roberto Rocha & Craig Thorburn, 2007. "Financial Sector Dimensions of the Colombian Pension System," World Bank Publications - Books, The World Bank Group, number 6785.
    4. Rodrigo Cerda, 2006. "Movilidad en la Cartera de Cotizantes por AFP: La Importancia de ser Primero en Rentabilidad," Documentos de Trabajo 309, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. Solange Berstein Jáuregui & Carolina Cabrita Felix, 2007. "Los determinantes de la elección de AFP en Chile: nueva evidencia a partir de datos individuales," Estudios de Economia, University of Chile, Department of Economics, vol. 34(1 Year 20), pages 53-72, June.
    6. Alejandro Corvalán & Pablo Serra, 2005. "Sunk Prices And Salesforce Competition," Documentos de Trabajo 216, Centro de Economía Aplicada, Universidad de Chile.
    7. Jorge Tarziján M, 2005. "Evaluación de la Autorización de Planes de Precio por Permanencia a las AFP," Working Papers 10, Superintendencia de Pensiones, revised Aug 2005.
    8. World Bank & International Monetary Fund, 2006. "Financial Sector Assessment Program Update : Republic of Poland - Competition and Performance in the Polish Second Pillar," World Bank Publications - Reports 16052, The World Bank Group.
    9. Heinz Rudolph & Roberto Rocha, 2007. "Competition and Performance in the Polish Second Pillar," World Bank Publications - Books, The World Bank Group, number 6775.
    10. David Bravo Urrutia & Olivia S. Mitchell & Petra Todd, 2007. "Learning from the Chilean Experience: The Determinants of Pension Switching," Working Papers wp266, University of Chile, Department of Economics.

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