Are LEDs the Next CFL: A Diffusion of Innovation Analysis

This paper examines properties of compact fluorescent lamp (CFL) adoption in the Pacific Northwest and early adoption characteristics of light emitting diode lamps (LED) to glean similarities and differences. CFLs were the emerging technology in the 90’s competing against the dominant incandescent bulb. With the phase-out of incandescent bulbs due to Federal legislation (see EISA 2007), within the next few years, CFLs will initially be the dominant bulb and LEDs will be the emerging technology. There is much discussion as to whether LEDs can reach a price point that will make them cost-effective enough to displace the competition. Although there is limited LED data due to its infancy in the market, information may be inferred from the more mature CFL market. With 17 years of CFL data, diffusion of innovation parameters via Bass model estimation are calculated. Additionally, own-price and income elasticities are calculated with more simple logarithmic functions. We find that CFLs are highly income elastic with a range of 6.10 to 7.80, implying that CFLs are a luxury good. Own-price elasticity ranges from -0.94 to -2.99 supports strong price sensitivity. Further, after 17 years, households in the Pacific Northwest have a CFL socket saturation of 24% while obtaining a peak market share of approximately 33% of all medium screw-based bulbs in 2008, suggesting that many consumers were never reached in this market. First cost and quality of CFLs were barriers that were never fully removed to attract these latter consumer groups, resulting in lost energy savings potential. LEDs provide the most energy saving in the residential lighting market, so from a conservation perspective are highly desirable. LEDs are on the right track as their price forecasts show precipitous declines, but may remain 2 to 3 times higher than CFLs. Therefore, given the evidence of strong consumer sensitivity to CFL price, LEDs may not reach their highest possible saturation rate unless prices can drop more than expected or non-financial benefits outweigh consumer cost concerns.