Friday, January 18, 2013
Economies of Scale and Merger Efficiencies: Empirical Evidence from the Chilean Pension Funds Market
Posted by D. Daniel Sokol
Claudio A Agostini (Escuela de Gobierno, Universidad Adolfo Ibanez) provides a discussion of Economies of Scale and Merger Efficiencies: Empirical Evidence from the Chilean Pension Funds Market.
ABSTRACT: The financial services industry has been experiencing a strong concentration process all over the world during the last decade (Cetorelli, et. al, 2007; De Nicolo, et. al, 2003; Gelos and Roldos, 2004; Rhoades, 1996). As usual, one of the main concerns associated to the concentration of the industry is related to the possibility of exercising market power. As a result, antitrust authorities in several countries have required an in depth analysis of the efficiencies of each merger when concentration indexes are above the minimum thresholds required by mergers guidelines. The main goal of this paper is to evaluate the welfare implications of the merger of two medium Pension Fund Managers (AFP) in Chile that was approved in 2007 by the Antitrust Tribunal (Tribunal de Defensa de la Libre Competencia). To this end, we estimate the size of scale economies in this industry, we present a simple theoretical model of the competition in the industry and, based on this model, we simulate the merger.