The Effect of Price on Firm Reputation

Michael Luca () and Oren Reshef ()
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Michael Luca: Negotiation, Organizations, and Markets, Harvard Business School, Boston, Massachusetts 02163
Oren Reshef: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130

Management Science, 2021, vol. 67, issue 7, 4408-4419

Abstract: Although 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 do not 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 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:7:p:4408-4419

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