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Shirking with good reputation? Evidence from hotel industry

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  • Kuo, Fang-Chang

Abstract

This paper investigates the relationship between reputation and investment in quality within the hotel industry. Utilizing a panel dataset of hotel investment expenditures and online consumer ratings, I employ a regression discontinuity design, which leverages TripAdvisor's rating display system to identify the causal relationship between online ratings and hotels' investment decisions. The empirical findings indicate that higher ratings negatively impact investment expenditures, whereas lower ratings tend to stimulate investment. This observed shirking behavior among hotels with better ratings may be ascribed to diminishing marginal returns on investment and reduced competitive pressures.

Suggested Citation

  • Kuo, Fang-Chang, 2024. "Shirking with good reputation? Evidence from hotel industry," International Journal of Industrial Organization, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:indorg:v:97:y:2024:i:c:s0167718724000432
    DOI: 10.1016/j.ijindorg.2024.103088
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    Keywords

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    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Z31 - Other Special Topics - - Tourism Economics - - - Industry Studies

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