Karan Malde
Aga Khan Academy, Mombasa
Extended Essay
Investigating the market
structure of M-Pesa
Research question: What type of market structure does M-pesa come across as, determined by
surveying the use of mobile money services that the residents of Beach Road, Nyali use?
Session:
Year: 2013
Number of Words: 3099
Abstract
My research aims to investigate the market structure of the industry M-Pesa, run by Safaricom a major
telecommunication firm in Kenya, is operating in my residential area which is Beach Road, Nyali. Mobile
money services have changed the face of mobile phones and money portability, increasing security and
ease of sending money from one person to another. It has been a major success so far and is still
growing with a great prospect of the future. My research question is: 'What type of market structure
does M-pesa come across as, determined by surveying the use of mobile money services that the
residents of Beach Road, Nyali use?'
In the process of determining this, the resulting effects on the national market, on competitors and on
the national economy have been observed. Reviewing these, recommendations have been given to
further enhance the research carried out.
To gather the necessary information, a questionnaire (appendix 1) was designed and given to mobile
money users. The sampling was completely random and 40 people were surveyed. It was assumed that
the sample represented the population of the area. During the research period, a lot of important
information was found on the internet and in newspapers and used in this paper. The data collected was
analyzed and represented in various forms including pie charts and bar graphs.
M-Pesa dominates the market with its high market share of mobile money services. While some
characteristics of a monopoly are present, it was concluded that it wasn’t indeed a monopoly as they
were other firms present in the industry. The research shows that M-Pesa is instead operating in an
oligopoly with monopolistic dominance which was largely due to its early introduction and dominance in
other sectors such as telecommunications.
Words: 289
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Table of Contents
Abstract ......................................................................................................................................................... 1
Introduction .................................................................................................................................................. 3
Literature Review .......................................................................................................................................... 4
Research Methodology ................................................................................................................................. 5
Findings ......................................................................................................................................................... 6
Evaluation and Recommendations ............................................................................................................. 10
Conclusion ................................................................................................................................................... 10
Bibliography ................................................................................................................................................ 11
Appendix 1 .................................................................................................................................................. 12
Table of Graphs
Graph 1.......................................................................................................................................................... 6
Graph 2: ........................................................................................................................................................ 7
Graph 3: ........................................................................................................................................................ 8
Graph 4: ........................................................................................................................................................ 9
Graph 5: ........................................................................................................................................................ 9
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Introduction
Mobile phones have evolved in the current times to allow a user to complete many activities from one
device. We have seen it evolve through the years and in 2007, Kenya witnessed yet another great
innovation added to a simple mobile phone. Users could now transfer money from their mobile phones
to family members around the country, with a small charge attached to each transfer. As the idea grew,
people could do a lot more with M-Pesa, it has become the central tool in business where users can buy
goods, pay bills, paying school fees and save money. With mobile phones being readily available for
relatively cheap prices, mobile money is accessible to majority of the population, 18.99 million by March
2012 to be exact, according to The Star, a local Newspaper (Kagwe, Business, 2012). Not only does
Mobile Money benefit users personally, but it also provides a platform from which businesses can grow
through increased revenue and profit with the ease of money transfer. The service provides great
employment prospects as they were 45,861 active mobile money transfer service agents by the end of
March and this figures are expected to grow as long as the Service grows (Kagwe, Business, 2012).
The demand, which according to Investopedia is the 'willingness and desire to pay a price for a specific
good or service' (Investopedia, 2012), of mobile money arises due to its easy access and portability, as
well as its security and affordability. Most people in Kenya stay away from their family homes which are
far from the Cities in order to earn some money and provide for their families. They have to send money
back home and so mobile money acts as a very easy mean in order to perform the task.
Mobile money has been a great success since being introduced in Kenya by Safaricom as M-Pesa in April
2007. They were the first to implement the system and the other telecommunication service providers
that include Orange Money, Airtel Money and YuCash followed shortly later. Together they supported
the transfer of Sh185.4 billion during the first quarter of this year (Kagwe, Business, 2012). Safaricom as
the introducers of the mobile money service are major market holders with 68% according to the World
Bank (Kagwe, Business, 2012).
My research question is 'What type of market structure does M-pesa come across as, determined by
surveying the use of mobile money services that the residents of Beach Road, Nyali use?' Beach Road,
Nyali is my residential area and it incorporates the entire socio-economic spectrum, from the wealthy to
those living below the poverty line. The research will provide information from which one can see MPesa's behavior and influence on the people of the area and see if the future holds the same dominance
if one.
I hypothesize that the market structure of the mobile money transfer services available in my residential
area would be an oligopoly but really close to a monopoly; this is because I feel that M-pesa would have
the largest market share as it was the first to be introduced into the market by Safaricom. However, as
much market share it has, other firms are present such as Airtel Money, Orange Money, etc. it cannot be
a price setter as it may lose its customers to the other firms present in the industry if prices are
increased. The product that is being sold is just slightly differentiated by the number of available options
one can do with the money from their mobile phones. Other firms may also be discouraged to join the
industry due to the high market share already occupied by M-pesa.
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Literature Review
Market structures:
A monopoly is said to follow the assumptions:
"There is only one firm, so the firm is the industry; barriers to entry exist, which stops new firms
entering the industry. The monopolist may make abnormal profits in the long run because of barriers to
entry." (Blink & Dorton, 2011) However, it also suggested that “Firms may gain high market shares
through other means than market power (e.g. a successful new invention); alternatively, a firm may
have a high market share for historical reasons.” (Trémolet & Binder, 2009) So if a firm does have high
market share it is not necessary for that firm to be running as a monopoly because it may have gained
this market share through historical reasons such as an early introduction.
In order to discover the market structure of M-pesa on Beach Road, a survey asking the people of the
area what service provider they use is necessary. According to (Trémolet & Binder, 2009) if a firm has
more than 5o percent of the market share they are in a dominant position. It is also necessary to know
as to why they chose the specific service as market share may be due to other reasons such as historical
reasons.
The barriers of entry mentioned above may include:
1. Economies of scale, which are a fall in the average costs of a good or service in the long run. These
may include buying wholesale or transporting in bulk to reduce the cost of one item.
2. Legal barriers (barriers of entry- Obstacles that prevent a new firm from entering a market, such as
economies of scale, product differentiation and legal protection.)
3. Brand loyalty occurs when consumers will purchase a certain good even though other goods may be
available and at a cheaper price.
4. Anti-competitive behavior, this includes reducing prices of goods so that firms trying to enter the
industry incur losses because they can’t afford to sell the goods at such a low price, while the monopoly
can afford such losses as they can recover the money through abnormal profits in the long run.
(Blink & Dorton, 2011)
Another form of market structure is an oligopoly which assumes that the industry consists of many firms
but is dominated by a few larger firms i.e. the firms dominating the industry share a large portion of the
output. The firms are known to sell slightly differentiated products such as motor cars and are highly
influenced by the actions of other firms in the industry and hence non-price competition occurs. This
includes strategies such as advertising in order to convince consumers to buy their product instead of
the other firms. By doing so, firms reduce the risk of incurring losses by reducing price as a method to
gain more consumers. (Blink & Dorton, 2011)
If the industry is running as an oligopoly, there must be some sort of advertisements present changing
the minds of consumers and this must be researched through the survey.
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Other market structures include perfect competition and monopolistic competition which assume that
they are many firms in the industry and that the output of the firm is relatively unnoticeable. As well as
all firms are free to enter or leave the industry and hence there are no barriers to entry or exit. (Blink &
Dorton, 2011)
In a study carried out in Uganda, where MTN (an African telecommunication company) has set up a
mobile money service called ‘m-money’ and runs as a monopoly as there are no other firms in the
industry, shows that most of the population are aware of the m-money services through the media in
terms of advertisement. The study also shows that there is a gradual increase in the users of the service.
(Inter Media, 2012)
If related to the Kenyan context, even though there are more than one firms present in the industry, the
market is similarly ran. We can predict that most firms are using advertisements (media) as their main
source of awareness similar to what MTN uses in Uganda, in order to gain a share of the market.
Research Methodology
For my research I handed out questionnaires through a small supermarket and a kiosk along two
different roads. I chose to hand out questionnaires as they are fast and effective compared to interviews
as well as being able to reach more people in a shorter time period. They were handed out at the two
locations to get a sense of the different income levels, with an assumption that lower income earners
would go to a kiosk rather than a supermarket. 40 questionnaires were handed out and the sample
population is assumed to represent the population of Beach Road, Nyali.
In the survey, the questions asked were quantitative questions. Quantitative questions were asked to
get a “hard measure of the market- market share.” (Dobney , 2010) Which means that the answers
provided to the questions will give an insight on the market itself. The questions included which service
provider they used, why they chose it, was there an effect of advertisement, use of service and finally if
the mobile money service influenced the use of the same mobile provider.
The first question was asked to get an estimate of the market share and the second was to distinguish
why they chose a particular service provider, to give information on whether or not it was a simple
choice or due to early introduction of M-pesa. The third question is directly linked to non-price
competition as if advertisement did play a big role in the market, it would suggest the market is an
oligopoly. Customers were asked about their use of the service to get a clear understanding if the
products sold were different or just slightly differentiated. The last question was asked to gain
knowledge on whether due to the mobile money services, the mobile providers would be gaining or
losing customers in order to advice future firms trying to enter the industry.
The market share of the Mobile Money Services was represented through pie charts for further analysis.
Other pie charts were used to show if the Mobile Money Service affected their decision in choosing a
specific Mobile Service Providers and the use of the Mobile Money Services. Bar graphs were used to
show why the people chose a service provider and whether or not advertisements played a role in their
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decision. Both bar graphs and pie charts allow me to clearly represent my findings and also allow me to
further my analysis in the area of my research.
Secondary sources:
During the period in which research was done, a lot of relative information was found on the internet
and local newspapers for example statistical data. This information was also used as it was important to
include it in the essay.
Findings
From my research, it was observed that M-Pesa holds 90 percent of the market share followed by Airtel
Money with 7 percent and lastly YuCash with 3 percent. The domination is clearly shown in figure 1
below. The presence of other firms proves that M-Pesa runs as an oligopoly however, the large market
share shows otherwise.
Graph 1
Graph showing market share of Mobile
Money Services In Beach Rd, Nyali
3%
7%
Mpesa
Airtel Money
YuCash
90%
According to (Trémolet & Binder, 2009) if a firm has more than 50 percent of the market share they are
in a dominant position. Using this we can see that M-Pesa is in a dominant position, which implies that
M-Pesa may have monopoly power over the other firms in the industry as represented in Figure 1.
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When asked why the people chose M-Pesa and not another mobile money service, most answered
because it was introduced first followed by it has more benefits then that they owned a Safaricom line
and finally it was cheaper. This is clearly represented in the bar graph below (Graph 2)
Graph 2:
Graph to show the reasons as to why people
chose M-Pesa
18
16
14
Number of pepole
12
10
8
6
4
2
0
Cheaper
Introduced First
More Benefits
Owned a Safaricom
Line
Reason of Usage
As mentioned in the literature review, a firm may gain its dominance through other measures such as
historic presence or dominance in other sectors (Trémolet & Binder, 2009). With regard to this,
Safaricom has a large market share in the telecommunications (Kiragu, 2012) sector and hence that may
have affected some peoples’ decision in choosing to use M-Pesa as shown in Graph2 by the people who
previously owned a Safaricom Line. As mentioned in the quote, Safaricom had a successful invention of
M-Pesa making it the lead cause as to why the firm has a much greater market share than the rest of the
firms in the industry. This is represented by the ‘introduced first’ bar in Graph 2. The high number
suggests that most people chose M-Pesa due to its early introduction to the industry and hence never
opted to change or found it had more benefits than other services provided by other firms.
However, they were some exceptions to this theory as the 3 people who had chosen other services all
answered that they didn’t chose M-Pesa because they had other lines and so, this brings us back to the
dominance of Safaricom in the telecommunication sector (Kiragu, 2012). Safaricom is not a monopoly
but has a much greater market share than Airtel and Yu, but the small market share they had has been
influenced to use their mobile money service rather than M-Pesa due to the relative convenience.
Demand for the service relies purely on why the service is needed and when asked what people use the
service for, most people answered, to send money to the family at home, which as previously
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mentioned is further away from the city or town. Graph 3 below, shows all the answers that were
chosen by the people who took the survey and this shows the wide variety of options the mobile money
service has to offer. The different firms have different applications available other than money transfer,
with M-pesa leading the way with applications enabling users to save money using the banking option.
Hence, ultimately affecting the users’ decision of which service provider to choose by knowing what
they will use the service for and if the other providers have the necessary applications or not.
Graph 3:
Graph to show the use of Mobile Money Service
40
36
35
30
25
20
13
15
Series1
10
5
3
2
0
Banking
Sending Money to
Family
Buying Goods
Paying Bills
These answers also include that of the users of Airtel money and YuCash. The low numbers in buying
goods may have been due to the lack of shops around the Beach Road area. However, as seen above
most of the people use the service for transferring money which shows that, the different applications
available only affect a small amount of the user population. This further suggest that the services
offered are slightly differentiated which suggest that the industry is running as an oligopoly.
Moving away from a monopoly; the most evident competition between the firms is seen to be
advertisement and not price as in Graph 1 only one person felt it is cheaper suggesting it is an outlier in
the data and Graph 4 below, shows advertisements was a major part in the decision making process of
the consumers. With 40 people taking the survey, 92 percent of the people felt that advertisement
played a role in their decision.
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Graph 4:
Graph to show if people think advertising
played a role in their decision
8%
Yes
No
92%
Advertisement being the deciding factor in the consumers’ choice, suggests that most of the
competition is a non-price affair suggesting that the market structure has some characteristics of an
oligopoly. Instigating the argument of whether or not the market structure is indeed a monopoly or an
oligopoly.
The final question asked in the survey was whether or not the use of one mobile money service affected
the use of that telecommunication services provided by that firm. Most people answered no, specifically
78 percent, said that their use of a mobile money service didn’t affect their use of that
telecommunication services of the same firm as clearly show in Graph 5 below.
Graph 5:
Graph to show if user's choice of Service
Provider is affected by Mobile Money
Services
22%
Yes
No
78%
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Evaluation and Recommendations
Many questions can be raised from this research, such as whether the surveys were heavily based on MPesa and whether or not it was efficient to incorporate other reasons as to why people chose M-Pesa or
any other service they did choose, whether or not the sample actually represented the population. For
example looking back the kiosk did not sell all brands of the necessity goods such as flour, and hence
could alter the presence of customers of different income levels. Other questions such as what if more
qualitative data was taken into consideration, how would that shape the conclusion differently? These
questions tend to be unresolved and open up areas for further research to be done by firms who have
more funding and can access a larger area and gather more accurate results.
If the research is followed up, I would recommend the researchers to ask more qualitative questions to
get a clearer grasp as to why they need M-Pesa and why they chose which service provider. It would be
good to have a few interviews with managers of the respected firms and try to get different views on
the topic. This was hard to do as many firms wouldn’t give out information. All in all, all the above
question represent new research areas, and if exploited, it may benefit new members in the industry or
already present members to enhance their dominance on the market by providing them with an
opportunity to improve their product based on results gathered.
Conclusion
When planning my research I believed that the market structure of the mobile money service in my
residential area would be an oligopoly but had some characteristics of a monopoly, and this research
does to an extent support my claims. However it may have proven to be a strong contender for a
monopoly with some characteristics of an oligopoly. M-Pesa’s market share in Beach Road, Nyali, clearly
shows that there is a major dominance in terms of number of customers. Nonetheless, there is no price
competition between the firms and resulting in a non-price competition which heavily includes
advertising. Most consumers felt that this was one of the major decision influencing elements which
suggests that the market is an oligopoly. The presence of other firms in the industry reiterates the claim
that M-Pesa is operating as an oligopoly and not as a monopoly. Nevertheless, it has some
characteristics of a monopoly, making it a dominant firm in the industry.
M-Pesa is the dominating firm in Beach Rd, Nyali however; this research shows that most of the users of
the M-Peas service chose the service due to the early introduction into the market, and it is also due to
the fact that most users had a Safaricom line before due to its large market share in the
telecommunication sector. Suggesting that the large market share held by M-Pesa is temporary as the
other firms are relatively new to the industry and have a much lower market share in the
telecommunication sector.
Therefore, my conclusion is that, M-Pesa is operating in an oligopoly market but has monopoly
dominance due to its historical presence and dominance in other sectors i.e. telecommunications
through Safaricom the service provider.
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Bibliography
Websites
Trémolet, S., & Binder, D. (2009, October). Regulatory Challenges . Retrieved August 2, 2012, from Body
of Knowledge: http://www.regulationbodyofknowledge.org/faq/MSAssessingMarketPower/
Investopedia. (2012). Economics. Retrieved August 2, 2012, from Investopedia:
http://www.investopedia.com/terms/d/demand.asp#axzz23WpFFpmY
Dobney . (2010). Research. Retrieved from Dobney : http://www.dobney.com/Research/MR_basics.htm
Inter Media. (2012, March). Mobile Money in Uganda: use barriers and opportunities. Retrieved from
Audiencescapes: http://audiencescapes.org/sites/default/files/FITS_Uganda%20Highlights.PDF
Newspapers
Kiragu, P. (2012, July 12). Business. Retrieved August 9, 2012, from The Star: http://www.thestar.co.ke/business/local/84582-rivals-eat-into-safaricoms-market-share
Kagwe, W. (2012 , July 14 ). Business. Retrieved August 2, 2012, from The Star: http://www.thestar.co.ke/business/local/84938-mobile-money-moves-sh185-billion-in-three-months-cck
Kagwe, W. (2012, July 19). Business. Retrieved August 2, 2012, from The Star: http://www.thestar.co.ke/business/local/85692-mobile-money-monopoly-unfair-says-wb
Books
Blink, J., & Dorton, I. (2011). Economics Course Companion. Oxford University Press.
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Appendix 1
The following is a questionnaire that I need for my research that will help me complete my Extended Essay which is
a form of a final assessment. My research question is as follows: what type of market structure does M-pesa come
across as, determined by surveying the use of mobile money services that the residents of Beach Road, Nyali use?
Please take time in answering the following questions:
1.
Which mobile money service do you use/ would use?
A. Mpesa
B. Zap
C. Orange money
D. YuCash
E. Other
.
If you chose M-pesa go onto number 2
if you didn’t choose M-pesa skip number 2
2.
Why did/would you choose M-pesa?
A. It is cheaper
B. It was introduced first
C. It has many more benefits such as paying bills, etc.
D. You had a Safaricom line before
E. Advertising
F. Well known
G. Other
.
3.
Why didn’t/ wouldn’t you choose M-pesa?
A. Had a different line
B. Don’t like the idea of single network use
C. Lack of security
D. Other
.
4.
Did advertising play an important role in your decision?
A. Yes
B. No
5.
What do you use the service for?
A. Banking
B. Sending money to family
C. Buying goods
D. Paying bills
E. Other
6.
.
Does the use of the mobile money service affect your use of the service provider?
A. Yes
B. No
Thank you for time, it is much appreciated

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