The Online Marketplace: Zero-Order City or New Source of Social Inequality?

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Growth and Change


Online shopping revenues in the United States were $520 billion 2018, a more than threefold increase over a decade prior. Recent research on county-level shares of consumer expenditures conducted online shows aggregate consumer gains but also considerable spatial variation, creating a new source of social inequality. Through the lens of classical retail location theory, this paper uses a novel approach to test the effects of marginalization, by both income and remoteness, on online shopping behavior. We find that increased shipping costs weaken demand for online goods across consumer groups. When the costs of shipping are controlled for, distance from a city most strongly motivates low-income counties to engage in online shopping, reflecting sensitivity to cost reductions. However, variations in cost and cost/distance ratios have little effect for this group, because if shipping surcharges exist, which they almost always do at high levels, consumers in these counties will forego online shopping. Medium-income counties are sensitive to variations in cost and cost/distance ratios. The highest-income counties display no response to the marginal costs of remoteness. In sum, online shopping benefits consumers living in counties marginalized by either remoteness or low income but not both.