Price competition, the Chilean pension industry and personal financial behavior

This thesis contains three essays. The first essay explains why firms may prefer a two-part tariff to a single price in a competitive market and the relation of these prices to the existing switching and other search costs in these industries. This is the case for many markets, like long distance telephone service, and for some financial institutions, like mutual funds and pension funds. The model developed in this essay shows that if firms are forced to charge a uniform price, profits are reduced and most consumers are better off.; The second essay modifies the model to consider some of the specific characteristics of the Chilean Pension Industry. We assume there are both horizontal and vertical differences across pension providers, where the vertical differences are uncertain and change over time. We also consider the provision by sales agents of discounts to new customers. In the case of the Chilean Pension Industry we observe a strong correlation between the number of sales agents hired and turnover. Sales agents improve the market's efficiency by reducing search costs. But rent seeking also leads firms to hire excessively large numbers of agents and induces excessive switching among pension providers.; The third essay studies savings and life insurance adequacy using a financial planning software package, ESPlanner. This program computes the highest sustainable living standard for the household based on an elaborated life cycle planning model. ESPlanner was used in financial planning sessions with 386 Boston University employees. The sessions solicited highly detailed and very reliable information about respondents' financial circumstances and financial plans.; The findings are striking. The correlation between ESPlanner's saving and insurance prescriptions and the actual decisions being made by BU employees is very weak in the case of saving and essentially zero in the case of life insurance. Many employees are spending far more and saving far less than they should, while others are under-spending and over-saving.