The Impact of Prices on Firm Reputation

Luca, Michael; Reshef, Oren

doi:10.2139/ssrn.3625175

The Impact of Prices on Firm Reputation

Harvard Business School NOM Unit Working Paper No. 20-128

40 Pages Posted: 12 Jun 2020 Last revised: 17 Dec 2020

See all articles by Michael Luca

Michael Luca

Harvard University - Business School (HBS)

Oren Reshef

Washington University in Saint Louis, John M. Olin Business School, Students

There are 2 versions of this paper

Date Written: December 11, 2020

Abstract

While a business's reputation can impact its pricing, prices can also impact 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: pricing,

Suggested Citation: Suggested Citation

Luca, Michael and Reshef, Oren, The Impact of Prices on Firm Reputation (December 11, 2020). Harvard Business School NOM Unit Working Paper No. 20-128, Available at SSRN: https://ssrn.com/abstract=3625175 or http://dx.doi.org/10.2139/ssrn.3625175