This article evaluates if the price plans based on permanence rewarding offered by Private Pensions Funds Administrators foster greater competition in the system, and if this situation could improve the conditions related to pricing and services for affiliates. Pros and cons of different potential structures for the design of the permanence-based prices are analyzed as well as the main differences related to the incentives generated over the behavior of this market. The article concludes that under certain market conditions, with high barriers of entry and significant economies of scale, the permanence rewards do not seem to resolve the competition problems of the system.
For that reason, a price strategy based in discounts for permanence should not increase significantly the switching costs of the affiliates or, alternatively, should be a part of an integral reform strategy aimed at reducing the barriers of entry to the industry and the factors that influence the high search costs.
Journal of Financial Issues (Revista de Temas Financieros). Vol 3, N°1, 2006VersionfinalTarzijan-Journal-VB