A new study shows that Black entrepreneurs have to battle discrimination in order to succeed in America. However, they are now receiving more support when they become visible in certain parts of the nation.
The study by Harvard Business School Professor Michael Luca and Abhay Aneja of the University of California, Berkeley, and Oren Reshef of Washington University, St. Louis, shows that by making it easier for Black restaurant owners to be found on Yelp, their demand increased, resulting in more calls, delivery orders, in-person visits, as well as an increase in-store traffic of about 10%.
“TECHNOLOGY COMPANY CAN PLAY A ROLE TO WORK FOR RACIAL EQUALITY.”
The study “Revealing Race Benefits: Evidence from Minority-Owned Businesses” also found that the business gains in areas with a lower racial bias and regions leaning Democratic were greater. According to an analysis of the profile photos of reviewers, new customers at Black-owned companies were more likely than previous customers to be white.
Luca, along with his co-authors, also worked with Wayfair on an analysis of a Black Supplier Program the company tested in early 2023. They found that the program increased engagement with Black Suppliers.
Luca has been researching the role that technology companies can play in achieving racial equality for over ten years. His earlier research revealed widespread discrimination at Airbnb. This led Airbnb to take measures to reduce bias and prompted a broader discussion among other companies.
Many businesses did not realize the consequences of their decisions, says Luca. His research on race and the online economy is being taught to first-year MBAs at HBS.
Luca’s work on labeling black-owned businesses could reveal another way of nudging support toward marginalized groups. According to Luca’s research, recent efforts by the Black Lives Matter Movement and corporate initiatives to address longstanding injustices may inspire more customers to support minority-owned businesses.
Companies shine a light on Black Businesses.
Luca, along with his colleagues, launched their study shortly after a number of tech and nontech companies, such as Yelp and Instagram, Wayfair GoP,u off(Instacart), Target, and Target, announced new programs to support Black-owned businesses. Yelp, for example, introduced a new system that allowed users to click on a button to find and identify Black-owned businesses.
“WE WANT TO KNOW IF THE PROGRAMS ARE EFFECTIVE OR IF THEY CAN BE BACKFIRING.”
In May 2020, the corporate initiatives began to expand amid the social unrest sparked by George Floyd’s murder by Minneapolis police. Over time, the landscape of programs has changed. Wayfair launched its Black Supplier Program early in 2023.
Luca says, “We wanted know if the programs worked or if they might backfire.”
Customers are looking for restaurants owned by blacks.
Yelp and Wayfair both provided data for the study. This included data on Yelp’s platform page views and phone calls. It also had reservations, online orders, and other restaurant activity before and after Yelp launched its “Black-owned button” in June 2020. These data were combined with additional information to identify Black-owned businesses that received the label and those that did not.
The study also found that Yelp’s new feature increased page views on the platform, website views, and requests for Black-owned restaurants.
The study found that Yelp’s new feature, which measures cell phone location data between April 2019 and August 2021, led to an increase of 10 percent in the number of weekly in-person visits to Black-owned restaurants.
The study states that “this feature significantly increased demand for Black owned businesses.”
White people support Black businesses.
The team studied data sources such as:
- The American Community Survey is a survey conducted by the US Census Bureau.
- The Massachusetts Institute of Technology Election Lab.
- Project Implicit is a nonprofit research organization that collects information about bias.
Authors used facial recognition software to determine a restaurant reviewer’s likely race based on the profile picture. Researchers found that after Yelp introduced its race feature, there were more white online restaurant reviewers who reviewed restaurants that had received the label.
The authors also used voting data and the Census to determine that the increased demand for Black-owned restaurants tends to occur in predominantly white, Democratic districts of the seven US metropolitan areas they examined: San Francisco, Los Angeles, New York, Minneapolis, Atlanta, Chicago, and Houston.
The authors used geographic variations to examine implicit bias in Project Implicit surveys. They found that the increased demand for black products was greater in areas where there were fewer anti-Black biases.
The authors of their study conclude that “collectively, our findings indicate that digital platforms can boost the performance for minority firms, especially during a period of increased awareness in the United States of the challenges faced by Black business owners.” These effects are dependent on the area and population targeted.
Supporting Black-owned Businesses
Luca warns that while the findings of the study are encouraging, it is not enough for corporate leadership to launch initiatives to support Black-owned businesses. Business leaders should consider the social impact of their business decisions and then measure them.
“Even in markets where there is an anti-black bias on average, making it easy for people who want to support black-owned businesses can have a positive effect.”
Luca, who was recently elected a fellow of the National Association of Business Economics along with Treasury Secretary Janet Yellen as well as former Federal Reserve Chairman Ben Bernanke, stresses that highlighting a business owner’s race must be done carefully and thoughtfully. Otherwise, it can have unintended effects and even facilitate discrimination.
These initiatives are an effort to tap into the pent-up desire to support marginalized communities. “Even in markets with a general anti-Black bias, making it easier for people to support Black-owned business can have a beneficial effect,” says he. “The asymmetry in the reduced search costs is a great way to encourage people to support Black-owned business, but it leaves the process unchanged for those who do not want to participate.”