With the rise of digital platforms, it is often assumed that we have entered a "flat world" (Friedman 2007) where content can be delivered globally at no extra cost. In a recent article (Watabe, Yang, and Kanasheuski 2025), we challenge this assumption using data from the digital game platform Steam. We find that even in a purely digital environment where physical shipping costs are zero, consumers are still significantly less likely to purchase games developed in distant countries. Further analysis suggests that information barriers and cultural preferences prevent the digital economy from being truly borderless.

The "law of gravity" is one of the most robust empirical findings in international economics (Disdier and Head 2008): trade between two countries tends to decline as the distance between them increases. For physical goods, this makes sense due to transit times and transportation costs. But does this rule still apply in the digital age? Digital distribution platforms like Netflix and Spotify promise instantaneous delivery at virtually zero marginal costs. If the physical costs of trade are gone, should the "law of gravity" disappear entirely?

To answer this, we analyze cross-country sales data for over 6,000 games on Steam, the world’s largest digital PC game distribution platform.¹ In such a marketplace, distance should theoretically become irrelevant. If a gamer in the United States can download a Japanese game as easily as a local one, geography should not dictate sales.

Quantifying Digital Friction

Our analysis reveals that distance remains a significant, albeit diminished, friction in digital commerce. While the "law of gravity" for physical goods typically implies a massive drop in trade as distance increases, our data shows that the friction for digital games is roughly one-tenth as strong. Specifically, while doubling the distance between countries might cut physical trade in half, it reduces digital game sales by only about 7%.

Why does this happen? We find that the barrier is not on the seller's side, but the buyer's. Unlike physical exporters who must raise prices to cover shipping, digital publishers do not systematically adjust prices based on distance. Consumers in distant countries aren't being priced out; they are simply choosing not to buy.

Information Lags and Cultural Gaps

If price is not the reason, what drives this digital gravity? Language seems like the obvious answer, but it fails to explain the phenomenon. Our data shows that gravity persists even between countries that share a language or have access to full translations.

Our research points to two main mechanisms: information friction and consumer taste.

First, consumers are often less informed about products developed in distant locations. When we group games by their release dates, we find that newer games are more sensitive to distance than older games. This suggests that information still faces a "transit time." Reviews and streamer coverage don't go global instantly; they spread gradually from their home market. A gamer in Tokyo is likely to hear about a Japanese indie hit long before a gamer in New York. Over time, as information diffuses, the distance effect fades, but the initial barrier remains a significant hurdle for new products.

Second, cultural preferences play a significant role. We compared complex, text-heavy Role-Playing Games (RPGs) against fast-paced Action games. The difference was striking. Action titles like Angry Birds, which rely on intuitive mechanics and universal visual cues, travel relatively easily. In contrast, narrative-dense RPGs like The Witcher—which demand deep linguistic engagement and cultural context—face a much steeper penalty over distance. Since this gap persists even when games are translated, it points to a deeper "cultural gravity" beyond just the language barrier.

Geography’s Enduring Role

While the digital revolution has drastically reduced trade costs, it has not completely eliminated the role of geography. Physical distance remains a proxy for information gaps and cultural differences that continue to shape global consumption patterns.

This aligns with findings in other cultural industries; for instance, Ferreira and Waldfogel (2013) document strong home bias and distance effects in the global music trade from 1960 to 2007. However, unlike the music market of the past half-century, which was shaped by physical inventories and radio airplay, our analysis of Steam focuses on a purely digital environment where marginal transport costs are truly zero. The fact that the 'law of gravity' persists even in this frictionless setting suggests that the barriers to globalization are deeply rooted in consumer behavior, not just logistics.

For policymakers and businesses, this highlights a crucial lesson: reducing trade barriers in the digital age isn't about building ports or lowering tariffs but about bridging the information and cultural gaps that still separate us.

Author’s Note

This column is based on Watabe, Y., Yang, H., & Kanasheuski, E. 2025. “Can Digital Distribution Defy the Law of Gravity?” The Canadian Journal of Economics. Revue Canadienne d’economique 58(3): 1123–1146. https://doi.org/10.1111/caje.70015

Note

1. We decided not focus on Netflix or Spotify because of their pricing model. Streaming services typically use subscription bundling (flat rates for all content), which masks the consumer's willingness to pay for individual foreign titles. In contrast, Steam operates on a pay-per-title model, allowing us to observe distinct purchasing decisions and isolate the specific friction of trading a digital good across borders.

References

Disdier, A.-C., and K. Head. 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade" The Review of Economics and Statistics 90(1): 37–48.

Ferreira, F., & Waldfogel, J. 2013. “Pop Internationalism: Has Half a Century of World Music Trade Displaced Local Culture?” The Economic Journal 123(569): 634–664.

Friedman, T. L. 2007. The World Is Flat. London: Penguin Books.

Author's Profile

Yuta Watabe is a researcher at the Institute of Developing Economies (IDE-JETRO). His research focuses on international trade.

* Thumbnail photo: Gaming Chairs and Computers, Photo by Yan Krukau on Pexels
** The views expressed in the columns are those of the author(s) and do not represent the views of IDE or the institutions to which the authors are attached.

©2026 Yuta Watabe

This column is licensed under a Creative Commons Attribution 4.0 International license (CC BY 4.0). https://creativecommons.org/licenses/by/4.0/deed