Restauranteurs often have a love-hate relationship with Yelp– they know the crowdsourced review website can drive significant traffic to their establishment but are similarly aware that negative reviews can crush them.
Now, two UC Berkeley economists have published the first study measuring how Yelp star ratings impact these businesses. The study found that a restaurant with a half-star rating increase – on a scale from 1 to 5 – is 19 percent more likely to fill their 7pm bookings, independent of food prices and service quality. Professors Michael Anderson and Jeremy Magruder also found that Yelp reviews have the greatest impact for restaurants with minimal alternate information, like guidebooks and news reviews.
“While we cannot comment on trends like overall restaurant usage, mean restaurant quality, and restaurant profits, simple theory suggests that decreasing the role of asymmetric information in restaurant choice should be welfare-enhancing,” write the researchers. “With the rapid spread of Yelp and other similar crowd-sourcing websites, this suggests that market evolution may be an important avenue of future research.”
The results of the study are based on the analysis of 148,000 Yelp reviews and daily reservation data from 328 San Francisco-based restaurants. Given the potential financial impact of these reviews, I would tend to agree that more research is clearly needed.
The study was published in the September edition of the Economic Journal and can be read in full here.