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Geography and the Internet: is the Internet a substitute or a complement for cities?

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  • Sinai, Todd
  • Waldfogel, Joel

Abstract

We study the tendency to connect to the Internet, and the online and offline shopping behavior of connected persons, to draw inferences about whether the Internet is a substitute or a complement for cities. We document that larger markets have more locally-targeted online content and that individuals are more likely to connect in markets with more local online content, suggesting the Internet is a complement to cities. Yet, holding local online content constant, people are less likely to connect in larger markets, indicating that the Internet is also a substitute for cities. We also find that individuals connect to overcome local isolation: notwithstanding a large digital divide, blacks are more likely to connect, relative to whites, when they comprise a smaller fraction of local population, making the Internet a substitute for agglomeration of preference minorities within cities. Finally, using online and offline spending data, we find that connected persons spend more on books and clothing online, relative to their offline spending, if they are farther from offline stores. This indicates that the Internet functions as a substitute for proximity to retail outlets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 56 (2004)
Issue (Month): 1 (July)
Pages: 1-24

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Handle: RePEc:eee:juecon:v:56:y:2004:i:1:p:1-24

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Web page: http://www.elsevier.com/locate/inca/622905

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  1. Gaspar, Jess & Glaeser, Edward L., 1998. "Information Technology and the Future of Cities," Journal of Urban Economics, Elsevier, vol. 43(1), pages 136-156, January.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  3. Edward L. Glaeser, Jed Kolko, and Albert Saiz, 2001. "Consumer city," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 1(1), pages 27-50, January.
  4. Greenstein, Shane, 2000. "Building and Delivering the Virtual World: Commercializing Services for Internet Access," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 48(4), pages 391-411, December.
  5. Lisa George & Joel Waldfogel, 2003. "Who Affects Whom in Daily Newspaper Markets?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(4), pages 765-784, August.
  6. Ciccone, Antonio & Hall, Robert E, 1996. "Productivity and the Density of Economic Activity," American Economic Review, American Economic Association, American Economic Association, vol. 86(1), pages 54-70, March.
  7. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, American Economic Association, vol. 66(2), pages 407-14, May.
  8. Joel Waldfogel, 1999. "Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated Product Markets," NBER Working Papers 7391, National Bureau of Economic Research, Inc.
  9. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  10. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 977-1009, October.
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