On the relationship between concentration and competition: evidence from the Chilean private pension system

Abstract

I use Panzar and Rosse (1987) methodology to estimate the degree of competition among Pension Fund Administrators (PFAs) in the Chilean private pension system for the period 1996 to 2008. The results indicate that the industry can be described as a cartel (or monopoly) during this period. There is evidence that in this industry there is a negative, and statistically significant, correlation between concentration and competition.

Keywords:

• Panzar and Rosse
• concentration
• competition
• pension system

JEL Classification:

• D40
• G23
• L11
• O16

Acknowledgement

I thank María Jesús Arteaga for excellent research assistance in a related investigation that helped to develop this.

Notes

¹ The C_n index measures concentration by adding up the n biggest market shares in the industry.

² Most studies use total revenues divided by total assets (or another scale variable) as the dependent variable. Bikker et al. (2006) showed that scaling the dependent variable causes misleading results.

³ The OLS estimation is H_t  = 1.517 – 0.0232 C _3,t and H_t  = 0.7922 – 0.0004 HH _t respectively. The p-value for null hypothesis of the coefficient being zero is 0.041 for the coefficient on C ₃ and 0.093 for the coefficient on HH.