{"id":18019,"date":"2022-05-11T01:01:00","date_gmt":"2022-05-11T00:01:00","guid":{"rendered":"https:\/\/www.economicsobservatory.com\/?post_type=question&p=18019"},"modified":"2022-11-02T09:17:20","modified_gmt":"2022-11-02T09:17:20","slug":"how-do-free-digital-products-affect-prices-and-living-standards","status":"publish","type":"question","link":"https:\/\/www.economicsobservatory.com\/test\/how-do-free-digital-products-affect-prices-and-living-standards","title":{"rendered":"How do free digital products affect prices and living standards?"},"content":{"rendered":"\n

Many of us use a smartphone every day for things that would have previously required all kinds of additional products that we would have had to pay for \u2013 including watches, diaries, maps and cameras. We also use them for newer services such as social media and online search. But how do these free digital products affect inflation and living standards?<\/p>\n\n\n\n

Since the launch of the Apple iPhone in 2007, the spread of 3G and beyond mobile networks, and the development of software for apps, smartphone use in the UK, as elsewhere, has become widespread. Ofcom (the UK\u2019s regulator for all communications services) reports<\/a> that in 2020, 85% of internet users over the age of 16 were going online using a smartphone (see Table 1). Further, these devices account for just over two-thirds of the five hours plus that the average user spends online.<\/p>\n\n\n\n

Table 1: Devices used to go online, among those who go online, by age group<\/h4>\n\n\n\n
<\/th>16+ internet users<\/th>16-24<\/th>25-34<\/th>35-44<\/th>45-54<\/th>55-64<\/th>65+<\/th><\/tr><\/thead>
Smart
phone<\/td>		85%<\/strong><\/td>87%<\/td>91%<\/td>93%<\/td>92%<\/td>85%<\/td>59%<\/td><\/tr>
Computer<\/td>74%<\/strong><\/td>68%<\/td>66%<\/td>71%<\/td>78%<\/td>77%<\/td>87%<\/td><\/tr>
Tablet<\/td>51%<\/strong><\/td>37%<\/td>48%<\/td>56%<\/td>55%<\/td>54%<\/td>56%<\/td><\/tr>
Smart TV<\/td>41%<\/strong><\/td>42%<\/td>46%<\/td>50%<\/td>43%<\/td>34%<\/td>26%<\/td><\/tr>
Games
console<\/td>		21%<\/strong><\/td>43%<\/td>30%<\/td>26%<\/td>17%<\/td>5%<\/td>1%<\/td><\/tr>
Smart speaker<\/td>20%<\/strong><\/td>23%<\/td>22%<\/td>24%<\/td>25%<\/td>16%<\/td>11%<\/td><\/tr>
Wearable tech<\/td>12%<\/strong><\/td>12%<\/td>17%<\/td>16%<\/td>13%<\/td>8%<\/td>4%<\/td><\/tr>
Only use devices other than a computer to go online<\/strong><\/td>26%<\/strong><\/td>32%<\/td>34%<\/td>29%<\/td>22%<\/td>23%<\/td>13%<\/td><\/tr>
Only uses a smart<\/strong>
phone to go online<\/strong><\/td>		10%<\/strong><\/td>12%<\/td>15%<\/td>13%<\/td>8%<\/td>8%<\/td>2%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
Source: Ofcom Adults\u2019 Media Literacy Tracker 2020<\/a><\/h5>\n\n\n\n

People have to pay for their data plans (which in the UK usually include the handset), and for some subscription services, such as paid-for streaming services like Netflix or some magazines. But much of what can be accessed either by smartphone or other devices is \u2018free\u2019. Some of the functions and apps are entirely free \u2013 such as the camera or calculator \u2013 while others we pay for with attention to adverts, or with personal data, rather than money.<\/p>\n\n\n\n

Items that we stop purchasing are removed from the \u2018basket\u2019 of goods used to calculate the Consumer Price Index (CPI). When the amount spent on them out of total budgets is so low, they get no weight in the measure of inflation. For example, 2022 saw the removal of reference books such as road atlases and dictionaries, with the Office for National Statistics (ONS) commenting: \u2018The rise of the internet has seen the need for reference books fall, all age groups are resorting to electronic maps to plan journeys etc while dictionary and thesaurus apps are also available\u2019. These substitutions are good news for consumers, allowing people to spend their money on other items.<\/p>\n\n\n\n

What about the money that we do have to pay to access apps and services? Over time, the price of telecoms services has declined, but its measurement is complicated. As consumers pay for bundles<\/a> of voice calls, texts and data services in packages, it is difficult to compare. The bundles might also include fixed line charges and access charges, as well as (part) payment for the device itself.<\/p>\n\n\n\n

In practice, the lowest price of a bundle that specified types of consumers would choose is used in constructing a price index. Recent work on the price index for telecoms services has found significant declines in prices over recent years, with the extent of the fall depending on how the complexities are treated (Abidrahman et al, 2020<\/a> and 2022<\/a> forthcoming).<\/p>\n\n\n\n

The ONS has adopted<\/a> the option, showing a fall of over a third in telecoms services prices since 2010 (see Figure 1). This price fall tallies with a surge in the volume of data used.<\/p>\n\n\n\n

Figure 1: Current and improved telecoms services deflator, 1997 to 2016<\/h4>\n\n\n
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