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Quality Differentiation and Spatial Clustering among Restaurants

Author

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  • Mossay, Pascal
  • Shin, Jong Kook
  • Smrkolj, Grega

Abstract

To explore the relationship between spatial location and quality differentiation, we build a dataset of over 30,000 restaurants rated by TripAdvisor, across large UK cities. We document several new stylized facts. Top-rated restaurants tend to be spatially more concentrated around the city center than bottom-rated ones. Whereas top-rated restaurants tend to locate close to other top restaurants, bottom-rated restaurants tend to locate away from each other and closer to top-rated ones. Our theoretical model can explain the main features of observed spatial patterns. Consistently with the predictions of our model, our regression analysis finds that an increase in the population density in the city center is associated with a decrease in the spatial dispersion of both top and bottom restaurants, this reduction being larger in magnitude for top ones. Also, a larger quality difference between top and bottom restaurants increases both the absolute and relative dispersion of top restaurants.

Suggested Citation

  • Mossay, Pascal & Shin, Jong Kook & Smrkolj, Grega, 2022. "Quality Differentiation and Spatial Clustering among Restaurants," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:indorg:v:80:y:2022:i:c:s0167718721000916
    DOI: 10.1016/j.ijindorg.2021.102799
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    More about this item

    Keywords

    Spatial competition; Quality differentiation; Hotelling model; Restaurant industry;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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