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.

In this paper we examine the importance of local spillovers such as network externalities and learning from others in the diffusion of home computers. We use data on 110,000 U.S. households in 1997. Controlling for many individual characteristics, we find that people are more likely to buy their first home computer in areas where a high fraction of households already own computers or when a large share of their friends and family own computers. Further results suggest that these patterns are unlikely to be explained by unobserved individual traits or by area features. When looked at in more detail, the spillovers appear to come from experienced and intensive computer users. They are not associated with the use of any particular type of software but do seem to be highly tied to the use of e-mail and the Internet, consistent with computers being part of an information or communication network.

The study interprets the early experience of Internet Service Providers (ISPs) in terms of the market for technological mediation. A firm involved in technology mediation takes advantage of gaps between general technological opportunities and particular user needs in specific places at particular times. If the economic opportunities are renewed frequently, then the business can grow and adapt to take advantage of them. This concept provides a framework for explaining many facets of business behavior accompanying the diffusion of Internet access technology.

Abstract: Concern over the potential need to redefine universal service to account for Internet-related services and other combinations of communication and computing motivates this study of the geographic spread of commercial Internet Service Providers (ISPs), the leading suppliers of Internet access in the United States. The paper characterizes the location of 54,000 points of presence, local phone numbers offered by commercial ISPs, in the spring of 1998. Markets differ widely in their structure, from competitive to unserved. Over ninety-two percent of the U.S. population has easy access to a competitive commercial Internet access market, while under five percent of the U.S. population has costly access. 1 This study was funded by the Institute for Government and Public

universal service, market failures, advanced telecommunication services, incomplete markets, merit goods, equity JEL Codes: L 96, L 98, H 54, D 70 The universal service in telecommunications is almost unanimously considered as a dynamic concept. The debate over its extension, which shall therefore have a permanent validity, requires its base to be more solid than the one that supports many of the usual positions, which are frequently mere declarations of wishes. Any opinion regarding the opportunity and magnitude of the extension should be based on a prior analysis of the possible presence of market failures in advanced telecommunications services (categorization as public or merit goods, externalities, market situation, effect on economic development and equity). Strictly speaking, only the existence of market failures can justify public intervention which, additionally, should be 1 adjusted according to both the intensity with which such motives appear, and which one is considered to be preponderant. Proceeding accordingly with this criterion, the different interpretations on the significance of the market failures give place to four basic positions: not extending universal service, or doing it according to one of the three conceptions we call correcting, driving and vertebrating universal service. 1.