The End of Tourist Traps: A Natural Experiment on the Impact of Tripadvisor on Quality Upgrading

Abstract

I study how cheaper access to online review platforms, caused by the abolition of mobile roaming charges in the EU, affects consumers’ behavior and restaurants’ incentives to upgrade quality. Combining Tripadvisor data with Social Security records, I find that revenues and employment in restaurants with ex-ante higher ratings grew by 3-10% after the internet price drop. In turn, the probability for lower-rating restaurants to exit the market doubled, while surviving lower-rating establishments hired workers with higher wages and better curricula, eventually improving their online reputation. My findings have implications for the role of review platforms in markets with information asymmetries.

Keywords: review platforms, asymmetric information, search costs, service industry, quality

JEL Classification: D820, D830, L150, L800