Expert Opinion and Product Quality: Evidence from New York City Restaurants

By Gergaud, Olivier; Storchmann, Karl et al. | Economic Inquiry, April 2015 | Go to article overview

Expert Opinion and Product Quality: Evidence from New York City Restaurants


Gergaud, Olivier, Storchmann, Karl, Verardi, Vincenzo, Economic Inquiry


I. INTRODUCTION

In the presence of information asymmetries consumers often rely on expert opinion to guide their purchase decision. An increasing body of economic literature analyzes the effect of critical assessments on prices and quantity consumed for a wide variety of experience goods such as wine, movies, hotel rooms, or books. All of these papers analyze the outcome of influenced quality perception of consumers.

This study is less focused on the question whether expert opinion impacts quantity or price of the good in question but rather examines consumers' quality perceptions and their possible changes directly. We analyze whether suddenly appearing expert opinion, on a market with long-standing published consumer-assessed quality evaluations, can alter consumers' quality perception and subsequently change prices. Will consumers stick to their original assessments or will they herd toward the expert's opinion?

We investigate this question by referring to restaurants in New York City. As the undisputedly leading restaurant guide, (1) Zagat has rated New York City's restaurants since 1979. Zagat publishes its guidebook once a year by drawing on consumer surveys. It, therefore, reflects local residents' restaurant preferences, which, until 2005, had been only scantly influenced by experts. There had not been any expert guides to New York City restaurants before 2005. Nationwide expert guides such as the Mobil Travel Guides, Fodor, or the AAA TourBook series, for various reasons, had never had any mentionable impact on New York City diners (Davis 2012; Ferguson 2008). Although the New York Times has published weekly reviews and assigned quality ratings to local restaurants since 1963, the number of reviews has hardly exceeded 50 per year--mostly focused on new openings. In comparison, Zagat reviews about 2,000 restaurants per year. This and the fact that the reviews are spread over about 50 New York Times issues substantially limited its influence and never challenged Zagat's position. (2)

In November 2005, however, with the first release of the red Michelin Guide New York City, the first one ever for the United States, Zagat faced serious competition. In its first year, Michelin reviewed 471 restaurants and sold more than 100,000 copies (Krummert 2006). In contrast to Zagat, Michelin relies on experts, that is, five anonymous professional test eaters. According to Ferguson, while Zagat is a plebiscite, Michelin is a tribunal (Ferguson 2008).

Although the advent of the Michelin Guide was excitingly anticipated in New York, (3) when it finally appeared the results were met with surprise, even with dismay. Many of the city's well-regarded restaurants were not awarded a Michelin star while others received unexpected honors (e.g., Cuozzo 2005a; Fabricant 2005b; Kurutz 2005). The press detected a bias toward French-owned venues and the New York Post even called the Michelin Guide the "idiot's guide" (Cuozzo 2005b). "After learning that Babbo had received [only] one star, Mario Batali (4) said he didn't think New Yorkers would give much credence to the guide. He was not happy with that ranking, the same as for the Spotted Pig, of which he is a part-owner. 'They're blowing it', he said. 'They can't put the Spotted Pig on the same level as Babbo"' (Fabricant 2005b).

What credence did New Yorkers give to the Michelin Guidel When tackling this question we do not analyze who of the two assessments, consumer or expert ratings, are closer to (unobserved) "true quality." (5) Instead, we analyze whether Zagat ratings have responded to Michelin quality assessments and employ a difference-in-differences approach for the years 2003, that is, two years before the first New York City Michelin edition, and 2006, one year after its publication. We refer to various ZIP-code level demographic variables, such as the number of wine stores per capita and the local incidence of the treatment (measured as percent of restaurants treated in a region) as instruments for the restaurant treatment (i. …

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