The rapid rise in sales over the Internet and the fact that most Internet buyers pay no sales tax has ignited a considerable debate over taxes and the Internet. This paper uses new data on the purchase decisions of approximately 25,000 online users to examine the effect of local sales taxes on Internet commerce. The results suggest that, controlling for observable characteristics, people living in high sales taxes locations are significantly more likely to buy online. The results are quite robust and cannot be explained by unobserved technological sophistication, shopping costs, or other alternative explanations. The magnitudes in the paper suggest that applying existing sales taxes to Internet commerce might reduce the number of online buyers by up to 24 percent.

We provide a framework and evidence to confront two contradictory yet common assertions: (1) new technology such as the Internet favors businesses in urban areas and (2) the Internet reduces the importance of distance for economic activity. Controlling for other factors, we show that participation in the Internet is more likely in rural areas than in urban areas. Use of frontier technologies also arises in rural areas for interfirm technologies, which are associated with ending economic isolation. Nevertheless, talk of the dissolution of cities is premature. Frontier Internet technologies for intrafirm communication and advanced computing appear more often at establishments in urban areas, even with industry controls. Major urban areas also contain many establishments from information technology-intensive industries, whose presence could reinforce the concentration of frontier Internet technologies in these areas. (JEL classification L63, L86, R0).

E-commerce will undoubtedly change the way business is done. But as we have said elsewhere, “technology changes, economic laws do not. ” Despite the changes introduced by e-commerce, many of the fundamental principles of competition will still be relevant. In this paper I investigate three aspects of competition in ecommerce: marketing, interconnection, and price matching. In each case I will describe the phenomenon, illustrate its relevance for ecommerce, and describe some research issues raised.

I am very grateful to Shane Greenstein for his guidance and support. I thank David Besanko, Ranjay Gulati, Mike Mazzeo, and seminar participants at the Workshop on Information Systems and Economics, UC

We empirically examine the role of social networks in welfare participation using data on language spoken at home to better infer networks within an area. Our empirical strategy asks whether being surrounded by others who speak the same language increases welfare use more for those from high welfare-using language groups. This methodology allows us to include local area and language group �xed effects and to control for the direct effect of being surrounded by one’s language group; these controls eliminate many of the problems in previous studies. The results strongly con�rm the importance of networks in welfare participation. I.

During the 1990s there were three back-to-back events that stimulated investment in information technology: telecommunications deregulation in 1996, the ``year 2K' ' problem in 1998-99, and the ``dot com' ' boom in 1999-2000. The resulting investment boom led to dramatic run-up of stock prices for information technology companies.

How and why do young firms develop distinctive skills and assets in evolving technologies? As a window on these processes, this study analyzes the decisions by Internet Service Providers (ISPs) to upgrade the speed of communication. In 1997 this involved 56K modem technology and Integrated Services Digital Network (ISDN) technology. We investigate why an ISP chooses to offer neither, one or both high speed data transmission technologies. Our findings are consistent with the view that scale of investment, local infrastructure's quality and explicit costs shape investment decisions by young firms in emerging markets.

This paper estimates a structural model of demand for the personal computer (PC) in order to evaluate the drivers of the “Digital Divide. ” Taking advantage of a large dataset on household-level PC purchases, the econometric model incorporates dynamic optimization, observed and unobserved heterogeneity, and the presence of a (sunk) learning cost incurred by first-time purchasers. The model therefore provides estimates of the differences in the marginal value for quality across different demographic groups, different consumer types, and an estimate of the difference in costs faced by upgraders and those who have not yet purchased a PC. These estimates allow for counterfactual evaluation of how demand would shift in response to a change in the rate of PC quality improvement, and allows for an assessment of the impact of policies designed to close the Digital Divide, such as subsidies for first-time buyers. The main findings indicate that the marginal value of PC quality varies significantly across income, education, age, and household size – the value of an extra unit of quality (measured as 200 MHz) ranges from $34 to $392 in 1999 and $0 to $142 in 2001. The “learning ” cost of buying a PC is estimated as $2938 in 1999 and $2234 in 2001. Further, PC owners are less sensitive to price and more sensitive to changes in the rate of PC quality improvement compared to non-owners. Finally, a short-term (one year only) subsidy of $200 for first-time PC purchasers is estimated to increase non-owner demand (i.e. first time purchases) by approximately 60 % while a long-term subsidy of the same magnitude will increase non-owner demand by approximately 10%. The evidence suggests that the Digital Divide results from the interaction between learning costs, persistent consumer heterogeneity and dynamic technological change in the personal computer industry. 1 Northwestern University. I would like to thank Shane Greenstein, Rob Porter, David Barth, Michael Coates, Eugene Orlov, and especially Scott Stern for great comments and support. I would also like to thank Forrester Research for the data and excellent support. 1.

(Please do not cite without author’s permission) This paper analyzes a model of consumer adoption of DVD players (the hardware-side) and movie studios ’ supply of movies on DVD discs (the softwareside). My primary focus is the estimation of complementarities between DVD player adoption and availability of content on DVD discs. The size of the complementarities determine the level of strategic inter-dependence between hardware and software firms, and thus play an important role in designing co-marketing strategies through which hardware and software firms can align their incentives. I estimate the parameters of the hardware adoption using household level panel data. To estimate the parameters of the software model, I use a cross section of movies released at different time periods. Estimated complementarities are statistically and economically significant. The hardware-side estimation shows that a 1 % increase in new DVD releases during May 2001 would increase DVD player sales by 0.5%. The software-side estimation indicates that a 1 % increase in DVD player installed base in May 2001 increases the number of new DVD releases by 0.19%. Finally, I present the importance of estimated complementarities from a practitioner’s stand point. In particular, I examine the amount of subsidy the movie studios would be willing to give to increase DVD player sales by 1 more unit.

Preliminary version, Comments are welcome In this paper we analyze demand for mobile telecommunications services in Germany in the period from January 1998 to June 2003. During this time, there was an explosive growth in the subscriber base by about 700 % and a rather moderate decrease in prices by about 41%. Our conjecture is, that prices alone cannot account for such rapid diffusion. We estimate a system of demand functions to measure the impact of network effects on the demand for mobile subscriptions. In this analysis, we use publicly available data on subscriptions and price indices, which are generated using public data on tariffs. We find that network effects played a significant role in the diffusion of mobile services in Germany.