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Research: Multi-homing vendors and loyal buyers on darknet marketplaces

The past few years have witnessed increased popularity of darknet marketplaces which orchestrate trading of illicit products on the deep web. The darknet marketplace ecosystem is evolving despite government shutdowns and takedown operations. International law enforcement agencies call for a better understanding of these novel illicit trading platforms. Buyers seem to shift to surviving marketplaces when one marketplace is taken down. Some vendors are multi-homing, i.e. they are offering their products on multiple darknet marketplaces at the same time. These vendors might be motivated to multi-home due to markets’ instability. Moreover, buyers on darknet markets show loyal behavior – they tend to buy most products from the same vendor.

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What is multi-homing?

In a trading ecosystem where multiple platforms are available, platform participants can trade only one platform or multiple platforms. These trading scenarios are respectively known as single-homing or multi-homing. Using specialized system models, some researchers have concluded that when all participants single-home, only one large platform will eventually survive. The platform participants become a crucial resource in such a scenario. The platform orchestrator, i.e. marketplace administrator, can pursue participants to exclusively trade on one platform. Some studies have shown, using a model of two marketplace platforms, that when all participants are allowed to trade on both marketplaces, multi-homing will take place, but only at one side of the market.

When multi-homing takes place, multiple platforms can be sustained. Multi-homing can significantly reduce the resource advantage of one of the marketplaces, due to the fact that the heterogeneity which the platform participant brings is also spread to the other platforms. Multi-homing, thus, minimizes the ability of a single marketplace to dominate the ecosystem.

Multi-homing on darknet markets and buyers’ loyalty:

A recently published paper studied weekly vendor sales on Agora and Evolution marketplaces, before and after the government takedown of Silk Road 2 and the exit-scam of Evolution. The results of this research study indicates that multi-homing vendors in a shutdown market usually boost their sales on a surviving marketplace, conditionally on the reputation in the shutdown market.

Vendors who multi-homed in a shutdown market outperformed both other multi-homers, as well as, single-homers. These results suggest that loyal buyers who shift to another marketplace, remain loyal to the same vendor in the surviving marketplace. With buyer-vendor ties being independent of the specific market available, one could argue that the policy of shutting down marketplaces would not be effective. This study also suggests that multi-homing vendors should receive prioritization in vendor takedown efforts from law enforcement.

This study contributed to the academic literature on the behavior of buyers and vendors in darknet marketplaces. The paper’s results on the relationship between multi-homing, reputation and seller performance in surviving marketplaces after a shutdown are novel to the academic literature. Furthermore, the study supports previous findings which indicate that reputation is an essential driver of transactions in darknet marketplaces.

The empirical literature on the influence of multi-homing and vendor or firm performance is non-existent. This study also contributes to the literature by providing an empirical approach which utilizes different forms of market shocks to analyze the causal effect of multi-homing. This method could be used in different trading ecosystems to boost the understanding of multi-homing benefits. This study adds the first empirically tested results to the literature on the benefits of multi-homing. Platform participants on other marketplaces can use these insights in their evaluation of the strategic choice to multi-home. When multi-homing is prevalent, a marketplace administrator might raise the value of its platform by allowing buyers to find a multi-homing vendor on their platform more easily. Future research could qualitatively investigate how buyers make their decision to shift to another marketplace, and/or vendors on various darknet marketplaces. Moreover, future research could investigate whether communication strategies used by multi-homers to promote their reputation in various darknet marketplaces affect their performance across marketplaces.

Final thoughts:

The trade of illicit drugs on darknet marketplaces has risen greatly over the past few years. Forced takedowns of darknet marketplaces by the government have not greatly influenced buyers and vendors, but only forced them to shift to different marketplaces. This research study analyzed the influences of multi-homing in a shutdown market on a vendor’s sales performance in a surviving market in the period following a shutdown. The results point to the fact that multi-homing vendors who multi-homed in the shutdown market managed to greatly boost their sales, when compared to both multi-homers who were active on other marketplaces and single-homers.

This evidence indicates that buyers are loyal to a multi-homing vendor, even when they have to shift to other marketplaces. The effect is highly dependent on the reputation of a vendor in the shutdown market, which shows that reputation influences buyers in their decision to remain loyal.

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