Geography as branding: Descriptive evidence from Taobao

Abstract

The geographic associations of brands and branding have been well demonstrated in the country-of-origin (COO) effect literature in that a product’s COO has a branding effect and consumers have preferences for goods from specific countries. The aggregation of these preferences can lead to unique and asymmetric trading patterns between countries. In this paper, we extend the geographic associations of brands and branding to domestic trade and document that seller provinces have a branding effect and geographic preference asymmetries can arise within peer-to-peer trade networks such as Taobao in China. We find that while buyers in one province in China are willing to purchase goods from sellers in another province, it is often the case that the relationship is not reciprocal. This asymmetry in preferences persists after controlling for time-varying factors at both buyer and seller locations. Like brands, a location therefore serves as a quality cue and reputation mechanism for the unobserved attributes of sellers, products, and logistics services from that location. We then explore factors that might be correlated with these time-invariant preferences across provinces. We find that in addition to the gravity effect of distance and the home-bias effect, other factors such as dyadic trust; migration; similarities in ethnicities; occupations and education levels; and levels of marketization and rule of law are correlated with the asymmetries. Notably, these factors differ from those identified in a contemporaneous study of eBay in the US, in which religiosity and political ideology contribute to the differences (Elfenbein et al. 2018). We believe that the Chinese and the US experiences differ because the two countries differ substantially in social, economic, political, religious, legal, and commercial environments.