Expert Opinion and Product Quality: Evidence from New York City Restaurants

24 Pages Posted: 7 Feb 2015

See all articles by Olivier Gergaud

Olivier Gergaud

Kedge - Bordeaux Business School

Karl Storchmann

New York University (NYU)

Vincenzo Verardi

FUNDP - University of Namur. CRED

Date Written: April 2015

Abstract

We analyze whether consumers’ quality perception and/or producer investment of New York City restaurants, measured by Zagat scores, responds to newly appearing expert opinion, measured by Michelin scores. Answering this question is of general economic interest as it applies to all markets with information asymmetries. Employing a difference-in-differences approach as well as a propensity score matching approach we find significant Michelin treatment effects on food and décor quality. Based on these changes, we find a Michelin-induced price increase of approximately 30% per Michelin star. To examine whether the improved food and nonfood quality is based on restaurant investments or is merely imagined, we analyze nonfood investments by referring to Wine Spectator wine list awards. Our analysis suggests that Michelin-reviewed restaurants are significantly more likely to invest in their wine list than others. As a result, Michelin reviewed restaurants are more likely to improve food and nonfood (esp. décor) quality leading to significant price increases. However, while restaurants that increase prices only due to décor and service improvements are more likely to go out of business, food improvements appear to secure a restaurant’s survival.

JEL Classification: D11, L15, L66

Suggested Citation

Gergaud, Olivier and Storchmann, Karl and Verardi, Vincenzo, Expert Opinion and Product Quality: Evidence from New York City Restaurants (April 2015). Economic Inquiry, Vol. 53, Issue 2, pp. 812-835, 2015, Available at SSRN: https://ssrn.com/abstract=2561677 or http://dx.doi.org/10.1111/ecin.12178

Olivier Gergaud (Contact Author)

Kedge - Bordeaux Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France

Karl Storchmann

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Vincenzo Verardi

FUNDP - University of Namur. CRED ( email )

8 Rempart de la Vierge
Namur, 5000
Belgium

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