Quantifying the Benefits of Smartphone Adoption: Digital Device Substitution and Digital Consumption Expansion*

Smartphones have revolutionized how individuals use consumer electronics and consume digital goods. I examine the extent to which smartphones have substituted other digital devices and expanded overall digital consumption, and I estimate the newly generated consumer surplus. To do so, I use newly available Korean panel survey data on individuals’ digital device ownership and detailed usage. During the 2010-2014 observation period, smartphone penetration in Korea grew from less than 10% to over 70%. I begin by documenting the effect of smartphone adoption on device ownership and time use using a difference-in-differences strategy. I then develop and estimate a model of consumer demand for digital activities, allowing the set of activities to change as a function of the individual’s smartphone ownership and physical location. The model allows me to quantify the overall consumer surplus from smartphones, how it varies across demographic groups, and how much of it results from substitution—using a smartphone for activities previously done on other devices—or expansion—using a smartphone for digital activities that were previously inconvenient or difficult. I find that the average monthly consumer surplus per person is $41, where $23 is the surplus from expansion, such as checking emails or searching for information online while commuting. The value is highest for individuals aged 20-30, who indeed constitute the group that adopted smartphones the most. Overall, the total consumer surplus from smartphones in Korea is approximately $49 million per day. I explore the market and policy implications of my estimates through counterfactual exercises. I find that providing free WiFi at public transportation locations in Seoul increases consumer surplus by $117 million per year, which substantially exceeds the annual budget allocated by the government to provide the service. I would like to thank Liran Einav, Tim Bresnahan, and Jon Levin for their invaluable comments and guidance. I am also grateful to Nick Bloom, Michael Dickstein, Matthew Gentzkow, Avi Goldfarb, Caroline Hoxby, Minchul Kim, Brad Larsen, Petra Moser, Pai-Ling Yin, and seminar participants at Stanford University and the Korea Information Society Development Institute (KISDI) for their helpful comments. The KISDI is greatly acknowledged for providing data. I am also grateful for financial support from the NBER Productivity, Innovation and Entrepreneurship Program’s Digitization Grant and Stanford Freeman Spogli Institute’s research grant. Mailing Address: Stanford University Department of Economics, 579 Serra Mall, Stanford, CA 94305. Email: [email protected]