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The Effect of Price on Firm Reputation

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  • Michael Luca
  • Oren Reshef

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

  • Michael Luca & Oren Reshef, 2020. "The Effect of Price on Firm Reputation," NBER Working Papers 27405, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27405
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L0 - Industrial Organization - - General

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