Quality Differentiation and Spatial Clustering among Restaurants

Mossay, Pascal and Shin, Jong Kook and Smrkolj, Grega (2020): Quality Differentiation and Spatial Clustering among Restaurants.

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. 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 ones. Our theoretical model can explain the main features of observed spatial patterns. We find that an increase in the population density in the city center reduces the spatial dispersion of both top and bottom restaurants but this reduction is larger in magnitude for top restaurants. Also, a larger quality difference between top and bottom restaurants increases both the absolute and relative dispersion of top restaurants.

• Item Type: MPRA Paper
• Language: English
• Keywords: Spatial competition, Quality differentiation, Hotelling model, Restaurant industry
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L8 - Industry Studies: Services > L83 - Sports ; Gambling ; Restaurants ; Recreation ; Tourism; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R32 - Other Spatial Production and Pricing Analysis

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