Free Digital Products and Aggregate Economic Measurement

Abstract

The widespread use of free digital services such as online search and social media raises the question of how to measure the economic activity and welfare provided by zero price digital products. Among the possible approaches, the so-called stated preference method directly questions consumers about the value they place on these products. Through three large representative UK surveys before and during COVID-19 lockdowns, we ascertain consumers’ stated willingness to accept the loss of a range of ‘free’ online and offline products, and some paid substitutes. The average stated value for free products is generally high, with clear rankings among products, while the natural experiment of the lockdown brought about changes in stated values that were often significant and of plausible sign and scale. The stated preference method therefore provides useful insights. However, there are limitations in using it to estimate aggregate economic welfare, including the absence of a budget constraint.