Increased Yelp penetration decreases footfall in chains

In this research paper by Michael Luca, "Reviews, Reputation and Revenue: The case of" the author has a few interesting findings. 

The notable one being that in markets where Yelp penetration has increased, chain restaurants have declined in market share. This may indicate that with greater visibility of independent restaurant through reviews, customers are more likely to experiment and visit newer places unlike markets where reviews are unavailable. In a market without reviews people probably choose eating places on the basis of popularity or because of the sheer marketing muscle of the chains. 

The few other highlights as quoted by the author are

(1) a one-star increase in Yelp rating leads to a 5% to 9% increase in revenue, 

(2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation. 

(3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation. I then test whether consumers use these reviews in a way that is consistent with standard learning models. I present two additional findings:

(4) consumers do not use all available information and are more responsive to quality changes that are more visible and

(5) consumers respond more strongly when a rating contains more information. Consumer response to a restaurant’s average rating is affected by the number of reviews and whether the reviewers are certified as “elite” by Yelp, but is unaffected by the size of the reviewers’ Yelp friends network.


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