The Effect of Price on Firm Reputation

24 Pages Posted: 22 Jun 2020 Last revised: 20 May 2023

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

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Date Written: June 2020

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.

Suggested Citation

Luca, Michael and Reshef, Oren, The Effect of Price on Firm Reputation (June 2020). NBER Working Paper No. w27405, Available at SSRN: https://ssrn.com/abstract=3632632

Michael Luca (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=602417

Oren Reshef

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

St. Louis, MO
United States

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