Openness as Platform Strategy - Evidence from a Quasi-Experiment in Crowdfunding

Abstract

In deciding on whether to open up its marketplace for all ventures or to control access, a crowdfunding platform faces an inherent trade-off between market thickness and quality concerns. We discuss how the level of platform openness affects project creators and project backers and test our hypotheses by analyzing the entire ecosystem of a leading crowdfunding platform before and after a policy change. Opening up the platform increased the quantity and variety of projects on the previously access-controlled supply side, but not their novelty. The number of funded projects increased in absolute but not in relative terms. Moreover, the average quality of the funded projects declined immediately, as evidenced by a higher default rate of promised rewards and more complaints from project backers, in particular those with prior crowdfunding experience.

Keywords: crowdfunding, openness, platforms, platform governance

JEL Classification: G24, L13, L15