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Consumer confusion: the choice of pension fund manager in Mexico

Published online by Cambridge University Press:  16 June 2009

ROBERTO CALDERÓN-COLÍN ,
ENRIQUE E. DOMÍNGUEZ  and
MOISÉS J. SCHWARTZ
ROBERTO CALDERÓN-COLÍN
Affiliation:
Planning Assistant General Director, Mexican Pension Supervisory Authority (CONSAR) (e-mail: rcalderon@consar.gob.mx)
ENRIQUE E. DOMÍNGUEZ
Affiliation:
Studies Director, Mexican Pension Supervisory Authority (CONSAR) (e-mail: edominguez@consar.gob.mx)
MOISÉS J. SCHWARTZ
Affiliation:
President, Mexican Pension Supervisory Authority (CONSAR) (e-mail: mschwartz@consar.gob.mx)
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Abstract

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.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 9 , Issue 1 , January 2010 , pp. 43 - 74
Copyright
Copyright © 2009 Cambridge University Press

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