The Impact of Prices on Firm Reputation
While a business's reputation can impact its pricing, prices can also impact its reputation. To explore the impact 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.
We are grateful for the comments and suggestions of Dan Elfenbein, Shane Greenstein, Troup Howard, Simon Martin, Jesse Shapiro, Andrei Shleifer, Steve Tadelis, and Reed Walker. We thank Yelp for providing data for this analysis. The right to publish is not tied to the results of this paper. I have done consulting for tech companies, including Yelp. Funding for this research was provided in part by Harvard Business School. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I was employed as an Economics Research Intern at Yelp 2018-2019, as part of my academic training. I did not receive compensation directly connected to this paper. Yelp provided data for this project. Our right to publish did not depend on results.