Abstract
This dissertation considers the competitive dynamics and regulation of mobile money in Kenya and Uganda, where it has experienced rapid growth. Mobile money has played a critical role in increasing financial inclusion, especially in developing countries. However, the market is often highly concentrated, characterised by network effects and first-mover advantages, leading to a winner takes all situation. Regulators have had to carefully balance the goal of regulating to ensure fair competition and regulating to encourage the growth and evolution of the market. Using a case study methodology, this study analyses the structure of mobile money in Kenya and Uganda, data on mobile money transfer prices and information from interviews with key stakeholders in Kenya and Uganda to achieve three main objectives.
First, the study sought to understand the factors that influence the evolution of the services from money transfer to financial services. The evolution of mobile money to mobile financial services increases access to savings and credit for the formerly excluded through a mobile phone, removing the proximity barrier to financial institutions and improving financial intermediation. Therefore, it is crucial to identify those factors that encourage the evolution of mobile money such that the benefits of mobile financial services can also be experienced in other economies. The study found that competition in the form of entry of new firms and new services and the implementation of flexible and pro-competitive regulation was critical in facilitating the evolution and adoption of mobile money services.
Second, it sought to understand the nature and extent of market power and how it influences firm strategies. It found that, as expected in the literature, the market gave rise to dominant firms that often engaged in anti-competitive conduct. It made a contribution in building a dataset on prices and analysing important categories of conduct. It also found that this dominance was leveraged and transferred into subsequent related services using the same platform. Despite the high probability for limited dynamic rivalry, the findings revealed that competition and rivalry were still possible, provided entry was possible from adjacent markets. It was also important that the regulator intervene to ensure pro-competitive outcomes.
Third, the study considered the role of the state and the public sector in the regulatory regime and how competition and regulatory decisions influenced the strategies of mobile
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money providers. It found that regulation was necessary to shape positive outcomes in the markets. The regulation, however, needed to be flexible to enable the launch of products, allow the development of new services and the entry of new firms, and to be pro-competitive to limit market misconduct and protect competition.