Seems to be working out for Amazon.com, Expedia.com, Walmart.com, movie rating sites like RottenTomatoes, vacation rental sites like vrbo.com, customer star ratings attached to businesses on yp.com, and ... well, I could keep on going.
Mr Stossel's last sentence is great.
The only possible argument I foresee one could make the other direction is a bad rating on food (health and safety-wise) only comes after someone has already gotten sick. But I've already gotten sick from national chain restaurants like KFC, so you can't argue regulation is a silver bullet prevention, either.

For any businessperson who has made the long term investment necessary to build a sterling reputation, regulation is nothing more than a costly nuisance. Anyone who sets his or her business standards at the level mandated by the government deserves to go bankrupt. Reputation, information and customer evaluation that the internet now makes freely available, and competition are the only guarantors of quality. I was in the securities business for twenty-eight years and although it is one of the most heavily regulated businesses, anybody who saw Wolf of Wall Street knows that they don't stop the criminals. It goes the other way. People think that because the business is regulated, they don't have to conduct any kind of due diligence concerning the people to whom they entrust their money.

I see two questions. One is the in drawing the line between a restaurant and people getting together for dinner. The second is whether bona fide restaurants need regulation. I think they do, although I've never considered the question, so I'm open-minded. The first question, IMHO, is the issue with these get-togethers.