Job Market Paper

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

Abstract: Private 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. Pension fund administrators bid before nonwinners set fees, and entry occurs endogenously through auction wins. Consumers exhibit substantial inertia in their provider choices. We find that the current auction raises consumer welfare by 5.8 percent of the average contribution per month relative to no auction, primarily through entry benefits that are partially offset by persistent mismatch from assignment to the winner. Expanding the auction to additionally award existing consumers does not increase aggregate welfare relative to the current design. Larger awards can delay entry while increasing allocation losses.