Yelp: The Chain Slayer?

I'm a big fan of Yelp -- more accurately I'm a big fan of my wife's use of Yelp.  In any event, bring it on Yelp.

From The Washington Post...

Michael Luca of Harvard Business School has a new paper studying the effects of Yelp.com on the restaurant industry.  [Of three main findings, one stands out:] chain restaurants as a whole seem to have declined in market share as Yelp has grown in prominence. “This suggests,” Luca writes, “that online consumer reviews substitute for more traditional forms of reputation.”

A bit more from the paper...

It seems uncontroversial to assert that providing this information to consumers might improve welfare in various ways. As evidence, I discuss two results. 

First, Yelp causes demand to shift from chains to independent restaurants.  By revealed preference, consumers' expected utility from going to independent restaurants must then be higher.  This can be viewed as a welfare gain resulting from either better restaurants or better sorting between consumers and restaurants. 

Second, revenue is a key determinant of a restaurant's decision to exit. Hence, Yelp may have a long-run effect on exit behavior of firms. Assuming Yelp measures are a reasonable measure of true quality, then Yelp may help to drive worse restaurants out of business, which would be a second source of welfare gain.