How does distance from competitors impact online quality ratings? Empirical analysis of data from Zomato

The quality of a product offering is vital for the success of a business. In this paper, we study how the local competition dynamics impact product quality decisions (measured by quality ratings over online platforms). Furthermore, we also evaluate how the extent of similarity in product offering between competing businesses impacts the quality rating differential between them. We begin by analyzing a game-theoretic model to formulate our research hypothesis. In addition, we empirically examine how location and product similarity influence quality decision differentials, using a dataset from Zomato that features restaurants in Bangalore, India. We implement natural language processing to estimate product similarity among various restaurants. Our analysis indicates a positive association between the distance between competing businesses and the differential in online ratings. Furthermore, we observe that high product differentiation is correlated with greater rating differentials between competing businesses. Our results imply that businesses entering a particular locality should consider geographical separation and product differentiation from competing businesses while making product quality investment decisions.