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Expert Opinion And Product Quality: Evidence From New York City Restaurants

Author

Listed:
  • Olivier Gergaud
  • Karl Storchmann
  • Vincenzo Verardi

Abstract

type="main" xml:id="ecin12178-abs-0001"> We analyze whether consumers' quality perception and/or producer investment of New York City restaurants, measured by Zagat scores, responds to newly appearing expert opinion, measured by Michelin scores. Answering this question is of general economic interest as it applies to all markets with information asymmetries. Employing a difference-in-differences approach as well as a propensity score matching approach we find significant Michelin treatment effects on food and décor quality. Based on these changes, we find a Michelin-induced price increase of approximately 30% per Michelin star. To examine whether the improved food and nonfood quality is based on restaurant investments or is merely imagined, we analyze nonfood investments by referring to Wine Spectator wine list awards. Our analysis suggests that Michelin-reviewed restaurants are significantly more likely to invest in their wine list than others. As a result, Michelin reviewed restaurants are more likely to improve food and nonfood (esp. décor) quality leading to significant price increases. However, while restaurants that increase prices only due to décor and service improvements are more likely to go out of business, food improvements appear to secure a restaurant's survival . ( JEL D11, L15, L66)

Suggested Citation

  • Olivier Gergaud & Karl Storchmann & Vincenzo Verardi, 2015. "Expert Opinion And Product Quality: Evidence From New York City Restaurants," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 812-835, April.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:2:p:812-835
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    File URL: http://hdl.handle.net/10.1111/ecin.2015.53.issue-2
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    Citations

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    Cited by:

    1. Catherine Haeck & Giulia Meloni & Johan Swinnen, 2019. "The Value of Terroir: A Historical Analysis of the Bordeaux and Champagne Geographical Indications," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(4), pages 598-619, December.
    2. Ennio E. Piano, 2021. "Organizing high-end restaurants," Economics of Governance, Springer, vol. 22(2), pages 165-192, June.
    3. Kang, Danyang, 2015. "Effect of Information on Consumer Perception: Evidence from Restaurant Hygiene Grade Cards in New York City," Working Papers 231156, American Association of Wine Economists.
    4. Joel Waldfogel, 2020. "Dining out as cultural trade," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 44(2), pages 309-338, June.
    5. Swinnen, J. & Meloni, G. & Haeck, C., 2018. "What is the Value of Terroir? Historical Evidence from Champagne and Bordeaux," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277221, International Association of Agricultural Economists.
    6. Saverio Dave Favaron & Giada Di Stefano & Rodolphe Durand, 2022. "Michelin Is Coming to Town: Organizational Responses to Status Shocks," Management Science, INFORMS, vol. 68(9), pages 6925-6949, September.
    7. Kamal Bookwala & Caleb Gallemore & Joaquín Gómez‐Miñambres, 2022. "The influence of food recommendations: Evidence from a randomized field experiment," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1898-1910, October.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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