Does Sustainability Pay in Tourism? Market Segmentation and Green Premiums in the Restaurant Industry

Within the hospitality sector, restaurants face growing pressure to integrate sustainable practices while maintaining economic viability. Two fundamental questions remain: do sustainability practices command price premiums, and does this relationship vary across market segments? This study employs dictionary-based text analysis to quantify sustainability practices from approximately 4.4 million consumer reviews spanning 38,930 U.S. restaurants (2018–2023). We make two methodological contributions: First, we identify a measurement artifact—sigmoid normalization applied to sparse keyword data can inflate regression coefficients by 25–44×—and we propose a log-density transformation that preserves measurement validity. Second, using hedonic pricing models with city and cuisine fixed effects, ordered logit specifications, and interaction models, we document a monotonically decreasing relationship between restaurant quality and sustainability-associated price premiums. Lower-rated establishments (<3.0 stars) exhibit a positive premium of +2.60%, mid-tier restaurants (3.0–4.0 stars) exhibit -0.61%, and higher-rated establishments (>4.0 stars) exhibit −2.06%. The interaction between sustainability and star rating is strongly negative (βint=−0.042, p<0.001), indicating that sustainability’s marginal pricing association diminishes by approximately 4.2 percentage points per additional star. These results suggest that sustainability functions as a quality signal in lower-tier markets but transitions to a baseline expectation in higher-quality segments. The findings inform differentiated strategies for restaurant operators, certification bodies, and policymakers.