The reduction of cost components for goods is an undisputable fact in the current era of technology. Digitalization has enabled a myriad of items to surmount location, replication, and authentication barriers. The minimization of frictions implies less impediments for transporting information; access to a good should therefore become easier and more equitable. If a textbook can be replicated in a digital form, then the reproduction and distribution of this knowledge is costless, and availability should increase. Yet, the theory and practice of this idea appear to clash. Physical requirements (such as proximity) that are made obsolete through digitalization still seem to play a key role in the distribution of goods.
Despite the new, low-friction dimension in which many entities exist today, historical patterns perpetuate in our modern environment. One of the most robust areas of economic research attempting to address this issue is the technological supply chain literature. This area of study ties together Information and Communication Technologies (ICT) and economic growth to understand the development of access. ICTs enable storage, distribution, and security of goods. A well-known example of such technology is content delivery networks (CDN); these entities provide high availability and performance in the digital space for their businesses. Major corporations like Google, Facebook, and Apple support large CDNs but fail to locate them in a manner that enhances access. Instead of prioritizing even placement, they optimize for proximity to major customers. Even with the ability to communicate and carry out business independent of location, large corporations showcase a preference for traditional conveniences like physical closeness to their clients. The uneven placement of location-independent technology could have larger implications that originally realized.
Building on research around internet access and CDNs, Greenstein and Fang analyze the location of data centers across the United States in “Where the Cloud Rests.” They conclude that markets are still privy to the localization of demand. Data centers provide inexpensive means to store and compute data while also reducing frictions for a mobile labor force. These entities allow for higher productivity at a lower cost and enable access to more resources. These benefits positively impact the areas they serve. It is vital to understand the distribution of these components if one wishes to comprehend the trade-offs inherent in unregulated supply and demand.
Major findings of the paper agree with conclusions of the field and state that large metropolitan areas have disproportionate access to the benefits brought about by data service providers. Cities below a certain size along with rural regions often contain fewer or none of these goods. These conclusions suggest that providers of ICTs are biased towards urban areas and have little incentive to spread to other locations. These implications indicate a pessimistic future in which urban areas are more advantaged in terms of access to technology. A digital book retailer who operates businesses in a small city may be inherently disadvantaged solely due to geographic choice. Despite the retailer’s ability to overcome physical costs for her goods, she is still subject to higher production costs brought about by lack of access. It is important to acknowledge and understand this underlying implication as the world moves closer to a digital age.
Greenstein, Shane, and Tommy Pan Fang. 2019. “Where the Cloud Rests: the Economic Geography of Data Centers.” Working paper. Harvard Business School.