Crowdfunding and Demand Uncertainty

40 Pages Posted: 3 Jun 2020 Last revised: 24 Sep 2023

See all articles by Christoph Scheuch

Christoph Scheuch

wikifolio Financial Technologies AG

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2023

Abstract

Reward-based crowdfunding allows entrepreneurs to sell claims on future products to finance investments and, at the same time, to generate demand information that benefits screening for viable projects. I provide a characterization of the profit-maximizing crowdfunding mechanism in a setting where the entrepreneur knows neither the number of consumers who positively value the product nor their reservation prices. The entrepreneur can finance all viable projects by committing to prices that decrease as the number of pledgers increases. This pricing strategy grants information rents to consumers with high reservation prices. However, if these information rents are large, then the entrepreneur prefers fixed high prices that lead to underinvestment.

Keywords: Asymmetric Information, Mechanism Design, Robust Implementation

JEL Classification: D82, G32, L11

Suggested Citation

Scheuch, Christoph, Crowdfunding and Demand Uncertainty (September 23, 2023). Available at SSRN: https://ssrn.com/abstract=3578402 or http://dx.doi.org/10.2139/ssrn.3578402

Christoph Scheuch (Contact Author)

wikifolio Financial Technologies AG ( email )

Berggasse 31
Vienna, 1090
Austria

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