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  • July 2021
  • Article
  • Management Science

The Effect of Price on Firm Reputation

By: Michael Luca and Oren Reshef
  • Format:Print
  • | Pages:12
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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.

Keywords

Pricing; Reputation Systems; IT Policy And Management; Economics Of Digital Platforms; Business Ventures; Reputation; Price; Consumer Behavior; Analysis

Citation

Luca, Michael, and Oren Reshef. "The Effect of Price on Firm Reputation." Management Science 67, no. 7 (July 2021): 4408–4419.
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About The Author

Michael Luca

Negotiation, Organizations & Markets
→More Publications

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More from the Authors
  • Where Have All the Good Men Gone?: Book Review of 'The Two-Parent Privilege' by Melissa S. Kearney By: Michael Luca
  • Experimenting with Algorithm Resume Screening By: Michael Luca, Jesse M. Shapiro, Adrian Obleton, Evelyn Ramirez and Nathan Sun
  • Gentrification and Retail Churn: Theory and Evidence By: Edward L. Glaeser, Michael Luca and Erica Moszkowski
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