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

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.  2004 Elsevier Inc. All rights reserved. Traditionally, markets for news and information as well as some retail goods have been predominantly local. As a result, consumers’ welfare has been limited by the size of their local market, and agglomeration of persons sharing similar preferences has improved their welfare by facilitating the provision of products they want.1 By agglomerating persons around the country—indeed, around the world—into a single market, the Internet offers the potential to radically alter consumption possibilities. In particular, the Internet may * Corresponding author. E-mail address: [email protected] (J. Waldfogel). 1 We are aware of other arguments for agglomeration besides consumption. Henderson [11] presents a model in which city size balances production benefits against congestion costs. See, for example, Ciccone and Hall [2] or Rosenthal and Strange [13] for recent empirical evidence on the production benefits of agglomeration as well as additional references. There is little research on consumption benefits of agglomeration. Glaeser et al. [9] is an