We study the tendency to connect to the Internet and the online and offline shopping behavior of connected persons. 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. Finally, we find that individuals connect to overcome local isolation, in the form of racial isolation or distance to retail stores.
Bibliographical noteFunding Information:
We are grateful to the Wharton e-Business Initiative (WeBI) for giving us access to, and technical assistance with, the Media Metrix data, and to Stephen Hoch for the Wharton Virtual Test Market data. We received useful comments from the editor and an anonymous referee, as well as seminar participants at Wharton, the University of Illinois, Duke, the Federal Reserve Banks of New York and Philadelphia, and the 2002 AEA Meetings in Atlanta. Sinai received financial support from the Ballard Scholars Program at the Zell-Lurie Real Estate Center, and Waldfogel thanks WeBI. Sam Chandan and Dan Simundza provided excellent research assistance.