An Empirical Study of Blockchain-Driven Transparency in a Consumer Marketplace

Abstract

Marketplaces have long been shaped by technological advancements from railroads to the mobile Internet and search. Now, blockchain technology lets firms credibly trace the flow of products through the supply chains that produce them. With the promise of transforming marketplace transparency, blockchain could enable consumers to trace their food consumption from farm to table, uncover counterfeits and contamination, and authenticate the social responsibility of products and firms. However, implementing blockchain-based supply chain transparency can be costly and complex, and no prior research has empirically examined blockchain technology's impact on consumer marketplaces. In collaboration with a leading Chinese technology company that operates the country's top online consumer grocery marketplace, we analyze the effects of its sellers' recent adoptions of blockchain tracing. We find that consumers respond positively to supply chain transparency, especially when the traced products are handling-sensitive or sold by third-party sellers. For third-party sellers, information provided through blockchain tracing is fundamentally different than the sellers' own quality claims, leading to an up to 23.4% increase in average revenue. Using structural estimation to analyze how consumers assess products, we show that consumers' prior shopping experience shapes the sophistication and magnitude of their responses to tracing and the resulting consumer welfare effects. Additionally, we show that consumers deem blockchain-backed information to be markedly more reliable than sellers' own claims alone.

Keywords: blockchain, consumer learning, consumer trust, consumer welfare, empirical operations management, food safety, information asymmetry, online marketplace, social good, structural estimation, supply chain transparency