Mobile Technology and Financial Service Bundling: A Structural Estimation of Mobile Money

Abstract

Using a dataset on mobile technologies and mobile money services in the emerging markets from 2000 to 2014, we examine the demand patterns of mobile technologies and mobile money when multiple generations of mobile technologies co-exist in the market and each of the technology may be bundled with mobile money service. Using a structural model, we estimate the own and cross demand elasticities for both mobile technology and mobile money, and the demand effects between mobile money and technologies. We find that the current, dominant technology (i.e., 3G) tends to have more robust demand as compared with other technologies that are either declining (i.e., 1G and 2G) or new to the market (4G), and that customers are more likely to substitute forward towards newer technology than backward towards older technology when the price increases for a technology. We also find that mobile money differentiates the market and mitigates competition for those firms that offer mobile money services. In addition, when the price of services increases, customers tend to substitute backward (i.e., from using mobile money to not using mobile money) as opposed to forward. Theoretical and managerial implications are also discussed.

Keywords: Mobile Money, Mobile Technology, Demand Estimation