Can digital distribution defy the law of gravity?

Abstract Does the online delivery of digital content truly eliminate geographical trade frictions? Using cross‐country sales data from Steam, the world's largest digital PC game distribution platform, we find that even in a purely digital environment, consumers are still less likely to purchase games developed in distant countries. This enduring geographical effect is primarily driven by changes in sales quantity rather than price. Further analysis points to information friction and consumer preferences as partial explanations. We develop a model incorporating these enduring frictions and quantify their significance in evaluating welfare gains.