Digitalization and consumer preferences: How and how much digital goods contribute to consumer welfare

Abstract

GDP and derived metrics such as productivity have been central to our understanding of economic progress and well-being. In principle, changes in consumer surplus provide a superior measure of changes in consumer well-being, especially for digital goods that are provided for free and are therefore not properly accounted for in economic measures such as GDP. We explore the potential for massive online choice experiments to measure consumer preferences and the consumer surplus. These experiments seek to periodically measure consumers’ willingness to accept compensation for losing access to various digital goods and are thereby able to estimate changes in consumer surplus from these goods. We illustrate this technique via several empirical examples which quantify the valuations of popular digital goods and categories. Our examples include incentive compatible discrete choice experiments where online and lab participants receive monetary compensation if and only if they forgo goods for pre-defined periods. Our results indicate that digital goods have created large gains in well-being that are largely missed by conventional measures of GDP and productivity. We also test to what extent digital goods such as social media are distracting users and reduce their productivity. The proposed measure of changes in consumer surplus has the potential for providing cost-effective supplements to existing National Income and Product Accounts. Specifically, we introduce a new metric, GDP-B, which focuses on the benefits, rather than the costs or prices, of goods. As an example, we estimate that including the welfare gains from Facebook since its launch in 2004 would have added between 0.05 and 0.11 percentage points to GDP-B growth per year (and thus productivity growth) in the US.

Biography

Felix Eggers is Associate professor of Marketing at the University of Groningen and Fellow of the SOM Research School at the Faculty of Economics and Business. Prior to joining the University of Groningen he was employed at the University of Hamburg, Germany, where he also obtained his Ph.D. He was a visiting scholar at MIT Sloan School of Management, Stellenbosch University, and the University of New South Wales (among others). His research interests are centered on preference measurement, conjoint analysis, choice experiments, and consumer decision-making. His research primarily focuses on digitalization and applications in pricing, branding, media distribution, or sustainability. His publications have appeared in multiple journals, including PNAS, Marketing Science, Journal of Marketing, International Journal of Research in Marketing, or Journal of the Academy of Marketing Science.

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