Minimum Initial Application and Price Discrimination in the Fund Market

Abstract Banks offer multiple funds that vary in its characteristics. Usually funds with larger minimum initial application have lower administration fees, which could be due to lower costs. In this paper I analyze the extent to which this negative correlation can be explained by costs or rather reflects banks attempt to practice second-degree price discrimination. In order to do this I estimate a structural model that allows to recover funds marginal cost and therefore, to indicate how much of the fee variation is due to cost differences. Results suggest that banks use the minimum initial application as a way to price discriminate. Counterfactual exercises assuming that banks can neither charge multiple fees nor minimum initial applications indicate that consumers welfare decrease in most cases.