Eduardo Saavedra

Collusion in the Private Health Insurance Market: Empirical Evidence for Chile

In September 2005, the Chilean Competition Authority filed a complaint against the 5 largest private health insurance providers for violation of antitrust laws. The 5 providers were accused of colluding to reduce the coverage of the plans offered to customers between March 2002 and March 2003. The main fact is that during that period these 5 providers reduced the coverage offered from 100% for hospitalization and 80% for ambulatory care to 90% and 70% respectively. As usual the observation of parallel conduct is not enough to infer collusion and it is required to observe additional factors that allow us to reject the hypothesis of providers behaving competitively. In this paper, we show that some specific characteristics of the health insurance markets generate barriers to entry and switching costs that allow the possibility of a collusive agreement. Then, we adapt an imperfect competition model of product differentiation to derive some testable propositions that allow us to distinguish between competition and collusion outcomes in the health insurance market in Chile. Finally, we show econometric evidence consistent with a collusive agreement among the 5 largest providers and inconsistent with a competitive equilibrium. . In particular, by comparing the prosecuted and non-prosecuted open Isapres before and during the collusive period, we show that sales efforts of the accused Isapres were reduced during the transition period toward lower-quality plans, that the profitability of the two groups of Isapres increased, and that the rate of transfers within the group of accused Isapres fell during the transition period.

Vertical Integration and Shared Facilities in Unregulated Industries

I this paper we consider a market situation in which initially there is an unintegrated monopoly upstream entry and vertical integration. The equilibrium entry mode -sharing the incumbent facility or building a new facility- is derived as well as the equilibrium market structure. Several policy prescriptions are set forth.

SUBASTANDO LA ENERGÍA ELÉCTRICA PARA CLIENTES REGULADOS: EQUILIBRIO CON INFORMACIÓN COMPLETA Y AVERSIÓN AL RIESGO

This paper studies the non-cooperative equilibrium of an electricity auction in which bidding firms are risk averse and have complete information. It assumes a centralized dispatch and stochastic hydraulic generation. We find that the auction allocates th

Toward a Modern State in Chile: Institutions, Governance, and Market Regulation

Chile, as most Latin American countries, inherited the language, religion, and the institutions from 16th century Spanish conquerors. Most institutions have not changed since. This paper examines the institutional and economic structure of the State in Chile. It concludes that in several dimensions the current structure is incompatible with an adequate functioning of market economies, as those intended by the economic reforms implemented during the last three decades of the last century. The country needs to implement reforms in the administration of the State, the working of the Judiciary system, and the incentives and operation of regulatory agencies. Their combined negative effects imply that the benefits of reforms, privatization and market liberalization are partially dissipated in the form of inefficiency and rent seeking behaviour. In turn, this suggest that it is unlikely that the Chilean economy will reach the high growth rates necessary to overcome under development. Our main conclusion is that, in order to implement a framework in which the State acts mainly as regulator and competition supporter, it is necessary to undertake profound changes in the structure of incentives in which it currently operates. Five elements are at the center of this far-reaching evolution away from centralism, stagnation, and inefficiency: (1) the divestiture of state-owned enterprises, (2) the upgrade and update of regulatory agencies and the institutional framework in which they operate, (3) the improve of competition policy institutions, (4) the improvement of consumer rights protection, and (5) a substantial improvement in the working of the Judiciary system.

Predation and Network Based Price Discrimination in Chile

This paper uses a model of strategic interaction among firms – that set discriminatory and nonlinear prices – together with public information on prices of the plans marketed by the three major mobile phone companies, to assess the extent to which on-net and off-net price differentials in the plans they offer could represent predatory practices in the mobile telephony market in Chile. The results show that these companies offered plans that could present evidence of predatory practices. Despite the fact that these plans were a small fraction of all the plans mobile phone firms offered they were recently banned by the antitrust authority as they represented a relevant fraction of all traffic.