The Impact of Prices on Firm Reputation
40 Pages Posted: 12 Jun 2020 Last revised: 17 Dec 2020
Date Written: December 11, 2020
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.
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