City or Country: Where Do Businesses Use the Internet?

As more and more firms adopted internet-related technology, many forecasters predicted that the internet would change both the way Americans do business and where they do business. Essentially, the predictions presented two possible scenarios on the latter point. In one scenario, the internet would bring firms together into a single “global village,” suggesting internet technology would diffuse more quickly to rural areas than to urban areas.The argument for this scenario is that the internet decreases coordination costs within firms and between firms, which reduces the importance of distance; and internet technology dramatically reduces the costs of performing isolated economic activity, particularly in rural settings. In the other scenario, the diffusion of the commercial internet would follow the historical pattern of “urban leadership.”The argument for this scenario is that the internet, like many other IT innovations, requires complementary infrastructure and support services, which are more readily available in urban settings. This scenario is often used to argue that there is a geographic “digital divide” favoring larger urban areas in commercial internet use.