  By combining persons around the world into a single market, the Internet may
serve as a substitute for urban agglomeration. That is, the Internet may level
the consumption playing field between large, variety-laden and small,
variety-starved markets. However, if local content on the Internet is more
prevalent in larger markets, then the Internet may be a complement for urban
agglomeration. Characterizing the nature of available content using Media
Metrix web page visits by about 13,500 households, we document that
substantially more online local content is available in larger markets.
Combining this with CPS Internet use data, we find statistically significant
direct evidence of both complementarity and substitutability: Individuals are
more likely to connect in markets with more local online content; and holding
local online content constant, are less likely to connect in larger markets. We
also find that individuals connect to overcome local isolation: Blacks are more
likely to connect, relative to whites, when they comprise a smaller fraction of
local population, making the Internet is a substitute for agglomeration of
preference minorities within cities, if not cities themselves. On balance we
find that the substitution and complementarity effects offset each other so
that the Internet does not promote or discourage agglomeration in larger
markets.
