Can you hear me now? The rise of smartphones and their welfare effects

Abstract

The advent of smartphones has caused a dramatic change in consumers’ access to information and media. Using data on consumer telephone service choices, along with geographic data on cellular network infrastructure and software applications, we estimate the demand for telephone services. We allow for the possibility that consumers purchase both landline and wireless service. Among our results, we find evidence that smartphones are much stronger substitutes to landlines than traditional wireless services, suggesting the growth of smartphones may speed up the decline of landline services. Using our demand estimates, we estimate the effect that smartphone availability has had on consumer welfare. We estimate that average monthly surplus (per-consumer) from smartphone introduction is approximately $35.50, which implies an aggregate monthly consumer surplus of approximately $7.03 billion for wireless consumers in the United States. This welfare increase is due to the expanded consumer choice set, as well as the effect that smartphone growth has had on improvements in cellular networks and a reduction in the price of wireless voice services.