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This paper examines how sales force impacts 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鈥恠ide policy with a competitive government player and a demand鈥恠ide policy that increases price elasticity. We find that demand鈥恠ide policies are necessary to foster competition in social safety net markets with large segments of inelastic consumers.

Published in: Econometrica

• Authored by Justine Hastings Ali Hortaçsu Chad Syverson
• 2017
• Social Sector Theory
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