A Rising Tide that Lifts All Boats: The Effects of Collective Recognition Programs on E-Commerce Sellers and Regional Economic Development

Abstract

Alibaba’s Taobao platform launched a unique Taobao Town Certification (TTC) program in 2014 to recognize all sellers in a rural town collectively when their total sales volume exceeded a certain threshold. Unlike other platform certifications that often promote popular products or top-rated sellers individually, TTC is a unique “collective” strategy that endorses all sellers in a specific town “collectively.” In this paper, we examine the causal effects of this collective promotion program on sellers’ business performance and other social issues such as regional economic disparities and inclusive economic development.

Using the synthetic difference-in-differences approach to overcome some technical challenges, we find that, on average, sellers in TTC-certified towns experienced substantial growth with a 32.1% increase in annual sales and a 20.8% increase in the annual number of orders. The cohort-specific treatment effects reveal that the benefits of TTC are more pronounced for later cohorts and are sustained over time. We also examine the heterogeneity of the treatment effects across regions and sellers of different characteristics, providing empirical support for both demand-side mechanisms (through enhanced seller visibility) and supply-side mechanisms (through increased selling efforts) of the treatment effects: We find that sellers in less economically developed regions with a higher level of collectivism receive more substantial benefits associated with TTC. Interestingly, we find that female and younger sellers derive more benefits from TTC. Overall, our results imply that TTC can reduce regional economic disparities and support inclusive economic development. Finally, we examine the spillover effects from TTC-certified towns to uncertified neighboring towns and discover positive externalities.

Our findings have important implications. First, we find empirical evidence on the effectiveness of collective promotion (via community-level certification) in improving seller performance collectively and stimulating regional economic development. Second, our results can encourage other platforms in China and other countries (e.g., JD.com in China, Flipkart in India, or Blibli in Indonesia) to develop collective recognition programs to support and sustain inclusive economic development in rural areas.

Keywords: Inclusive Economic Development, E-Commerce Platform, Platform Certification, Synthetic Difference-in-differences