Consumer Surplus from the Internet
By David Henderson
Would you give up the Internet for One Million Dollars?
That’s the title of a 5-minute YouTube video produced by the Fund for American Studies. There’s a lot of good stuff packed into this video plus some apparently contradictory stuff.
First the good:
It’s clear that there’s a lot of consumer surplus from the Internet. They do it well, but they exaggerate–more on the exaggeration anon.
It’s also clear that, as economist Michael Cox puts it, the rich tend to be the first adopters who pay the high prices for the first products and that enough of them doing so takes us down the learning curve so that a huge swath of the population can easily afford the new cell phone, etc.
Second, the apparently contradictory stuff:
After asserting that someone would have to pay them over a million dollars to give up the internet because it is so integrated into their lives, some of those same people say absolutely no way would they be willing to pay $4,000 for a cell phone. See the apparent contradiction? I say “apparent” because there are two ways out:
1. Huge wealth endowment effects. They’re not wealthy enough to value the thing at $4k but they could still rationally insist on being paid over $1 million to give it up.
2. The question was about what they would pay for one part of the internet–a cell phone–not for the whole internet.
Still, I think this part is more of a tribute to people’s innumeracy than it is an indicator of consumer surplus. There’s huge consumer surplus from the Internet but the people interviewed seemed to give out numbers with little thought.
Still, the question is a good one and I’ll try to frame it more carefully:
How much would you have to be paid, not just for you to give up the internet, but for the internet to disappear? (Why do I distinguish between your giving it up and the whole thing being gone? Because, of course, as the video points out, you get huge consumer surplus from producers’ use of the internet.)
HT to Dan Klein.