Three Stars That Affect Everything

THE COMPETITIVE DYNAMICS OF AN INDUSTRY CHANGE WHEN CREDIBLE OPERATORS INTRODUCE A FORM OF RANKING. THE CASE OF THE MICHELIN GUIDE ENTERING THE WASHINGTON MARKET

by Giada Di Stefano


Rankings impact competition across a variety of industries. Be it in the case of colleges and universities, restaurants and hotels, or books and movies, the existence of a ranking evaluating organizations along a series of parameters restricts our consideration set and help us make choices more easily. But if rankings have the power to change our behavior as customers, how do they impact the behavior of the organizations being ranked? Together with colleagues Saverio Dave Favaron and Rodolphe Durand (HEC Paris), I tackle this question in a recent working paper, where we look at how organizations modify their behavior when a new ranking, produced by a prestigious evaluator, is introduced.

Our investigation started on May 31, 2016, when Michael Ellis, director of the Michelin guide, announced that the first edition of the Washington D.C. Michelin Guide would be published in the fall of the same year. According to Michelin, the publication of the guide would “put the city more firmly on the world stage of great gastronomic destinations.” Press interviews released by prominent chefs, and our own interviews with food critics and restaurant managers in the weeks that followed the announcement, substantially confirmed Michelin’s expectations. As the manager of a restaurant in DC commented: “it is a significant standard for dining and so for DC to be included for the first time is a big deal.”

With the publication of the guide on October 13, 2016, Washington D.C. joined New York, San Francisco and Chicago as the fourth city considered by Michelin for its red guide. Of all restaurants in the city, only 106 were included, with 12 of these being awarded stars.
In this study, we look at how these hundred restaurants modified their behavior compared to similar D.C. restaurants that, based on their Yelp rating, price point, and cuisine style, could have made it into the guide, but were ultimately not included. We further compare included restaurants to similar restaurants located in a comparable city where Michelin did not enter (i.e., Boston).

Our results show that inclusion in the guide pushed restaurants to enact a series of “ceremonial” changes to their menus, aimed at signaling the newly acquired position and “prove” they belong to the elite of the industry. In particular, restaurants increased references to sophisticated cooking techniques and provided longer descriptions of dishes. Restaurants that were not well known in the local dining scene further emphasized the origin of the ingredients used in their dishes and reduced references to the size of portions. Finally, since both evaluated restaurants and their customers observe and react to the entry of Michelin, we examine how restaurants’ reactions change when, after the entry of Michelin, we remark a significant change in the profile of customers issuing evaluations or the content of evaluations themselves. We find that included restaurants further emphasized the origin of ingredients if, in the two months following the publication of the guide, customers’ reviews became more focused on food.

This last finding is particularly interesting as it sheds light on the existence of an interplay between the evaluations provided by professional critics and those issued by ordinary customers. As the number of industries not affected by online feedback continues to shrink, and the volume of online reviews generated each day continues to grow, organizations find themselves in a position where it is hard to dismiss the opinions customers express online as inconsequential.