Working Paper: NBER ID: w27405
Authors: Michael Luca; Oren Reshef
Abstract: While a business's reputation can affect its pricing, prices can also affect its reputation. To explore the effect of prices on reputation, we investigate daily data on menu prices and online ratings from a large rating and ordering platform. We find that a price increase of 1% leads to a decrease of 3%-5% in the average rating. Consistent with this, the overall distribution of ratings for cheaper restaurants is similar to that of more expensive restaurants. Finally, these effects don't seem to be driven by consumer retaliation against price changes, but by changes in absolute price levels.
Keywords: Price; Firm Reputation; Online Ratings; Consumer Behavior
JEL Codes: D4; D8; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Price Increase (D49) | Decrease in Ratings (G24) |
| Price Increase (D49) | Negative Impact on Firm's Reputation (G33) |
| Price Increase (D49) | Lower Ratings for First-Time Customers (L15) |
| Price Increase (D49) | Changes in Consumer Expectations (D12) |