The Crowdfunding Game

TL;DR

This paper models the strategic decision-making process of contributors in crowdfunding campaigns, analyzing how campaign thresholds influence contributions, social welfare, and information aggregation.

Contribution

It introduces a formal crowdfunding game model, analyzing equilibrium existence, social welfare, and revenue implications related to campaign thresholds.

Findings

Higher thresholds act as social insurance, encouraging contributions.

Equilibrium existence depends on campaign parameters.

Thresholds impact information aggregation and revenue outcomes.

Abstract

The recent success of crowdfunding for supporting new and innovative products has been overwhelming with over 34 Billion Dollars raised in 2015. In many crowdfunding platforms, firms set a campaign threshold and contributions are collected only if this threshold is reached. During the campaign, consumers are uncertain as to the ex-post value of the product, the business model viability, and the seller's reliability. Consumer who commit to a contribution therefore gambles. This gamble is effected by the campaign's threshold. Contributions to campaigns with higher thresholds are collected only if a greater number of agents find the offering acceptable. Therefore, high threshold serves as a social insurance and thus in high-threshold campaigns, potential contributors feel more at ease with contributing. We introduce the crowdfunding game and explore the contributor's dilemma in the context of experience goods. We discuss equilibrium existence and related social welfare, information aggregation and revenue implications.