Olivier Gergaud

Kedge - Bordeaux Business School

Karl Storchmann

affiliation not provided to SSRN

Vincenzo Verardi

FUNDP - University of Namur. CRED

Abstract

Exploiting a natural experiment for New York City restaurants we analyze whether consumers’ quality perception is influenced by newly appearing expert opinion. As the leading restaurant guide Zagat has rated New York City’s restaurants since 1979 by drawing on consumer surveys. In 2005, with the first release of the red Michelin Guide New York City, Zagat faced a serious competition. In contrast to Zagat, Michelin relies on experts. Employing a difference-in-differences approach we analyze whether consumer assessments (Zagat ratings) have responded to Michelin quality assessments. While we do not find any significant Michelin-induced increase in perceived food quality, we find strong Michelin effects on service and décor quality. In addition, the inclusion in the Michelin guide induced substantial price increases. While restaurants that were not Michelin-reviewed can raise their prices in response to food quality improvements, service and décor improvement do not payoff. In contrast, Michelin-reviewed restaurant enjoy substantial returns only to service and décor improvement. Our results suggest that expert opinion on the New York City restaurant market exerts a negative externality on gourmets by given restaurants incentive to invest mainly in service and décor leading to higher prices.

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