Effects of restaurants' reputation and leadership in the restaurant industry, under quality and price competition

Ferreira, Fernanda A.; Ferreira, Flávio

http://hdl.handle.net/10400.22/30295

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Authors

Ferreira, Fernanda A.

Ferreira, Flávio

Abstract(s)

This paper explores the effects of reputation and leadership dynamics within the restaurant industry, focusing on how these factors influence competition in quality and price. Using a three stage dynamic model, where restaurants first determine quality in two stages and then set prices, this study aims to analyse the interactions between higher-reputation and lower-reputation establishments. The findings suggest that the leadership position assumed by the lower reputation restaurant can be advantageous, allowing the leader to surpass the follower in profitability. Additionally, a widening reputation gap increases total market output, although the effects on both consumer surplus and social welfare remain ambiguous. Reputation emerges as a critical asset, shaping not only consumer perceptions but also operational strategies and competitive outcomes within the industry. This paper enhances the understanding of reputation dynamics within the restaurant industry. Grasping these dynamics is crucial for managers aiming to optimize competitive strategies and boost both profitability and customer satisfaction.