Business Bias

Racial and ethnic inequality is a real problem in many countries. Among its many dimensions, one of the most significant is the gap in the ability to set up and run a business successfully. Minorities, particularly African Americans, face significant obstacles in starting and maintaining businesses in economically advanced countries, often due to ingrained prejudices and difficulty accessing economic resources. A recent study published in the American Economic Review examined an innovative policy introduced by Yelp – an online platform created in 2004 in the United States to help users find and review businesses – that is, the ability to review businesses and ... to support Black businesses, analyzing its effects on the economic performance of these businesses.

In 2020, Yelp introduced a label that allows users to easily identify minority-owned businesses, particularly Black businesses. The idea is simple: if consumers want to support these businesses but don't have the tools to identify them, greater transparency could make it easier to support them and increase demand. However, this choice also carries risks: clearly displaying a business's ownership could attract bias or even discrimination from some customers, potentially worsening the performance of these businesses.

The results of the study actually suggest that the policy has had a surprisingly positive impact. Restaurants that adopted the label on Yelp saw a significant increase in online visibility: the average number of visits to their business pages increased by 65% ​​compared to the previous period. Sales also benefited from the new label, with a 41% increase in revenue per week. This improvement, which increased revenue from an average of $63 to $89, was accompanied by an increase in physical visits to restaurants.

Interestingly, the success of this initiative was driven primarily by white consumers. Despite the presence of racial bias, many of these consumers chose to support African-American businesses as soon as they became identifiable on Yelp. It should be noted, however, that the label was was launched at a time of intense media attention to racial issues, following the death of George Floyd and the Black Lives Matter protests. The relevance of the racial issue may have amplified the desire of many customers to financially support African-American communities.

Scholars have explored the dynamics that explain these results, analyzing the influence of the political and demographic context. The effects were more marked in predominantly white areas, with greater openness towards minorities, and in areas where the Democratic Party is more rooted. This suggests that the success of similar policies depends strongly on the socio-political context.

In conclusion, making the identity of companies more visible can improve the opportunities economic inclusion of minorities, but the success of such initiatives requires a favorable cultural and political environment. In an increasingly digital world, tools such as labeling offer relatively low-cost solutions to promote the economic and social inclusion of entrepreneurs belonging to historically discriminated ethnic groups.


Pierluigi Conzo
NP December '24