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Competition in a World with Markups and Sales Agents: The
Chilean Pension Fund Industry

Solange Berstein and Alejandro Micco


We study competition in a model with differentiated products, searching
costs and sales agents. In this model firms charge a price above marginal
costs. This positive mark-up gives firms incentives to steal consumers
from their rivals. For this purpose, firms hire sales agents that contact
customers personally to switch them from one firm to another and offer
rewards to the switchers. These rewards can be interpreted as price
cuts to rival's customers (price discrimination). The model generates
endogenous customer-turnover among firms that may be completely
inefficient from a social point of view. This model is applied to the Chilean
pension funds industry by using a unique data set of customers cross
flows among firms. Remarkably, in 1995 there was more than one sales
agent per two hundred customers with a turnover between Pension Fund
Administrators of more than 50 percent. This high turnover was associated
with large costs, and the authorities reacted by imposing restrictions to
switching bu the end of 1997. The empirical section of the paper attempts
to analyze the role of sale agents in this industry and the impact if such