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

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. (C) 2004 Elsevier Inc. All rights reserved.