With the accelerated construction of a unified market, fostering an "internal circulation" consumer market with a good competitive environment is an effective way to achieve a smooth recovery of China's economy. Based on a database of Chinese industrial enterprises from 2001 to 2015, this paper examines the impact of product market distortions caused by market forces on residents' consumption potential and the moderating effect of digital transformation from the perspective of digital transformation in manufacturing industries, using matched data from China's regional input-output tables. The study finds that: (1) Product market distortions have a significant dampening effect on residents' consumption potential, mainly through four channels: increased price volatility, reduced product quality, reduced scale of supply, and reduced labor income. (2) The moderating effect of digital transformation significantly weakens the negative effect of product market distortions on residents' consumption potential, with the Industrial Internet showing a stronger moderating effect compared to other dimensions of digital transformation. (3) Controlling for product category, industry and regional heterogeneity, digital transformation significantly mitigates the dampening effect of product market distortions on residents' consumption potential for basic and general quality products, capital-intensive and low-competitive industries, urban and western regions. The findings provide industry-level evidence and a basis for decision-making to optimize the market supply environment, promote digital transformation and realize the effective release of consumption potential.