Research Summary

Crowdsourced reviews

by Michael Luca

Description

To determine whether online consumer reviews influence the way that reputation is formed, Professor Luca has combined reviews from the website Yelp.com with public restaurant data. He has shown that a one-star increase in Yelp ratings results in a 5- to 9-percent increase in an independent restaurant’s revenue. Further, while chain restaurants are unaffected by rating changes, their market shares decline as Yelp penetrates the market.

Professor Luca also examines which features of review websites have the largest impact on consumer decision making. He has found that while consumers do not use all available information, they respond more strongly when a rating contains more information (number of reviews overall and number of “elite” reviewers).