Job Market Paper

Can Auctions Promote Competition in Regulated Pension Fund Markets? Evidence from Chile (joint with Bernardo de Moura)

Abstract: Regulated pension markets often feature high concentration and high markups, reinforced by consumer inertia. We study whether auctions can promote competition and enhance consumer welfare, focusing on Chile’s auction design, which assigns new consumers to the winner. Using data from Chile’s Superintendence of Pensions, we develop and estimate a structural model of consumers’ provider choices and dynamic competition among pension fund administrators (PFAs) with endogenous entry. PFAs, including incumbents and potential entrants, bid by submitting commission rates for the right to enroll the new consumers, after which the nonwinning incumbents can reset fees. Consumers exhibit substantial inertia in their provider choices. We find that the current auction raises consumer welfare by an amount equivalent to 5.8 percent of the average contribution per month relative to no auction primarily through entry benefits, which are partially offset by persistent mismatch from assignment to the winner. Counterfactual experiments show that expanding the auction to additionally award existing consumers to the auction winner does not increase aggregate welfare relative to the current design. Larger awards delay entry because of more aggressive bidding by incumbents, while increasing allocation losses.