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The transformation of household expenditure from offline to online: The case of South Korea


  • Lee, Dong Hee
  • Lee, Duk Hee


Using longitudinal time-series data, this paper analyzes the causes of the recent sharp increase in household expenditure on telecommunications in South Korea with a linear approximate almost ideal demand system (LA/AIDS) model. The main results are as follows. First, Korean household demand for telecommunications is income elastic and price inelastic following structural changes associated with the rapid diffusion of mobile phones and the Internet during 1998-2007. Second, following these structural changes, telecommunications have become substitutes for books and printed matter and culture & recreational durable goods and they complement cultural & recreational services and private education. This suggests that the pattern of household expenditure has changed from offline to online, and this helps explain the increase in the price elasticity and the expenditure on telecommunications in Korea. While the increase in telecommunications expenditure is a natural phenomenon representing structural changes to the information society, the increase may also cause a delay in the diffusion of new services and broaden the digital divide. Consequently, this paper provides some implications for planning a more desirable and forward-looking policy to prepare for the future information society.

Suggested Citation

  • Lee, Dong Hee & Lee, Duk Hee, 2010. "The transformation of household expenditure from offline to online: The case of South Korea," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 21, International Telecommunications Society (ITS).
  • Handle: RePEc:zbw:itse10:21

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    References listed on IDEAS

    1. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    3. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
    4. Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June.
    5. Jörn Kruse, 2008. "Network Neutrality and Quality of Service," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 43(1), pages 25-30, January.
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    More about this item


    Telecommunications expenditure; Online activity; Almost Ideal Demand System; Demand elasticity; South Korea;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications


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