The One-Shot Crowdfunding Game

TL;DR

This paper introduces a game-theoretic model of crowdfunding campaigns, analyzing how threshold settings influence contributor behavior, equilibrium outcomes, and social welfare in the context of experience goods.

Contribution

It presents the first formal analysis of the crowdfunding game, examining the effects of campaign thresholds on contributor decisions and campaign success.

Findings

Higher thresholds act as social insurance encouraging contributions.

Equilibrium existence depends on campaign parameters.

Thresholds impact social welfare and revenue outcomes.

Abstract

The recent success of crowd-funding for supporting new and innovative products has been overwhelming with over 34 Billion Dollars raised in 2015. In many crowd-funding platforms, firms set a campaign goal and contributions are collected only if this goal is reached. At the time of the campaign, consumers are often uncertain as to the ex-post value of the product, the business model viability, or 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 crowdunding 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.