Randomized Entry

We study the direct and indirect effects of randomized entry. In partnership with the two largest service providers in Ghana, we implement a three-step design that randomizes the entry of new financial mobile money vendors, who also sell non-financial goods/services, across local markets. This mixed financial and non-financial services setting is widespread and naturally emerges as the market entry approach for several real-world financial markets. Randomized entry increases firm conduct and service quality and decreases price-cost markups, indicating positive consumer surplus. We find evidence of within-market revenue reallocation and expansion for mobile money and a large services multiplier: revenues for non-financial goods/services increased (+20%), with aggregate service industry revenues increasing. These improvements emphasize the “real effects” of financial markets on the local economy, and come from adoption externalities and aggregate increase in household expenses. Entry increases local economic activity, and it does so not only by changing markets for digital financial services, but also by transforming the non-financial services sector. These effects are key ingredients for advancing basic and applied knowledge on firm entry in industry equilibrium.