Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, May 1, 2013

Advertising and Competition in Privatized Social Security: The Case of Mexico

Posted by D. Daniel Sokol

Justine S. Hastings (Brown), Ali Hortacsu (Chicago), and Chad Syverson (Chicago) describe Advertising and Competition in Privatized Social Security: The Case of Mexico.

ABSTRACT: This paper examines how advertising 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 a model of fund manager choice, price and advertising competition (in terms of sales force deployment), nesting models of informative and persuasive advertising. We find evidence in favor of the persuasive view; exposure to sales force lowered price sensitivity and increased brand loyalty, 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/05/advertising-and-competition-in-privatized-social-security-the-case-of-mexico.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef017c3836f7c5970b

Listed below are links to weblogs that reference Advertising and Competition in Privatized Social Security: The Case of Mexico:

Comments

Post a comment