On many websites, consumers provide feedback, including of their product failures, which can damage firms’ reputations and adversely affect sales. Increasingly firms respond to these consumers’ online reports of failures. We examine the effects of firms’ online failure recovery responses on their performance. We develop hypotheses relating online failure recovery responses of apology, cheap talk (deflecting responsibility), failure resolution (to prevent re-occurrence of failure), and compensation (to the consumer with failure experience) to firm performance. We further hypothesize that competitive intensity in the firm’s environment will moderate these effects. We use monthly panel data on online failure recovery responses of 465 hotels in ten cities in Texas between 2007 and 2012 to test the hypotheses. We measure firms’ online failure recovery responses using text analysis of their online responses and measure performance by their sales. Results indicate that the firm’s online apology and failure resolution increase its performance, the firm’s cheap talk decreases performance, and online compensation has no effect on performance. Also, the benefits of firms’ online failure recovery responses are higher when competitive intensity decreases. Estimated elasticities indicate that the effect of online apology (positive) on firm performance is highest, followed by that of cheap talk response (negative) and failure resolution (positive).