Online Intermediation in Legacy Industries: Evidence from the Adoption of Restaurant Reservation Platforms

Abstract

Digital platforms have become increasingly prevalent across a wide range of traditionally offline industries, reshaping business-to-consumer interactions through online intermediation. While these platforms reduce search and transaction costs and are broadly popular among consumers, their growing role has raised concerns among businesses that resent platform fees, as well as among regulators who worry about the concentration of power in a small number of gatekeepers. In this paper, we explore the impact of such platforms on prices and firm survival in legacy industries. We use the case of OpenTable—a leading online restaurant reservation platform—to examine how the rise of an online intermediary has affected both incumbent firms and consumers in the restaurant sector. We compile a rich panel dataset of more than 6,000 restaurants in New York City between 2005 and 2016, combining information on prices, platform participation, and business survival. Using a variety of empirical approaches, we find that restaurants adopting OpenTable tend to raise their prices by an amount roughly equivalent to the platform’s per-diner fee. We observe more nuanced effects on survival: for most restaurants, OpenTable adoption does not significantly affect exit rates. However, restaurants that attract only a moderate share of customers through the platform are less likely to exit—and notably, this group does not raise prices after adoption. These findings suggest that while online intermediation can create value for both buyers and sellers, overreliance on intermediary platforms may increase costs for firms and contribute to higher prices. The results have important managerial and policy implications. Legacy businesses should seek to benefit from platform participation without losing their lower-cost, direct customer channels. Regulators, meanwhile, should encourage innovation in digital markets while guarding against conditions that incentivize overuse of online intermediaries.

Publication
Submitted to Information Systems Research
Date