Speaker: Richard B. Freeman (Harvard University and NBER)

Title: Innovation in Cell Phones in the US and China: Who Improves Technology Faster?

Abstract: Cell phones are the archetypical modern consumer innovation, spreading around the world at an incredible pace, extensively used for connecting people with the Internet and diverse apps. Consumers report spending from 2-5 hours a day at their cell phones, with 44% of Americans saying “couldn’t go a day without their mobile devices.” Cell phone manufacturers introduce new models regularly, embodying additional features while other firms produce new applications that increase demand for the phones. Using newly developed data on the prices, attributes, and sales of different models in the US and China, this paper estimates the magnitude of technological change in the phones in the 2000s. It explores the problems of analyzing a product with many interactive attributes in the standard hedonic price regression model and uses Principal Components Regression to reduce dimensionality. The main finding is that technology improved the value of cell phones at comparable rates in the US and China, despite different market structures and different evaluations of some attributes and brands. The study concludes with a discussion of ways to evaluate the economic surplus created by the cell phones and their contribution to economic well-being.