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Reaching for the Stars: Spatial Competition and Consumer Reviews

Josh Matti

Atlantic Economic Journal, 2020, vol. 48, issue 3, No 5, 339-353

Abstract: Abstract Competition is a key feature of the market process assumed to improve market outcomes. But how strong is the relationship between competition and positive consumer experiences, and how does the relationship vary across space and type of competitor? Phoenix is a suitable setting in which to explore these questions because it is a major metropolitan area with thousands of unique restaurants rated on Yelp. The consumer experience is measured based upon Yelp user-generated reviews through July 2016, with higher ratings reflecting better customer experiences. Competition is defined in different ways depending upon the number of overall, same-price and same-type restaurants nearby. Given differences between chain and independent restaurants, competition is further segmented across these two types of establishments. After controlling for restaurant characteristics, census-tract-level demographics, census-tract fixed effects and sub-industry fixed effects the results suggest that spatial competition is only associated with better customer experiences for same-category independent restaurants within driving distance (1-5 miles). The association is not present for overall and same-price independent restaurant competition nor for chain restaurants. Consistent with the sprawling layout of the Phoenix area, the effect of competition is only for restaurants within driving distance. These findings are relevant for cities designing policies to attract residents by offering high-quality consumer amenities.

Keywords: Consumer services; Restaurants; Spatial competition; Yelp; D22; L10; L83; R30 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11293-020-09679-x

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