Contingent stimulus in crowdfunding

Abstract

Reward-based crowdfunding is a form of innovative financing that allows project creators to raise funds from potential backers to start their ventures. A crowdfunding project is successfully funded if and only if the predetermined funding goal is achieved within a given time. We study the optimal timing of contingently placing a "fulcrum" in the random pledging process, with the potential of tilting it toward success, which would be a win-win for the creator, backers, and platform. Specifically, we consider a model where backers arrive sequentially at a crowdfunding project. Upon arrival, a backer makes her pledging decision by taking into account the expected success of the project. We characterize the dynamics of the project's pledging process. We show that there exists a cascade effect on backers' pledging, which is mainly driven by the all-or-nothing nature of crowdfunding projects. According to our data collected from the most popular online crowdfunding platform, Kickstarter, the majority of projects fail to achieve their goals. To address this issue, we propose three contingent stimulus policies, namely, seeding, feature upgrade, and limited-time offer. As a result of the cascade effect on backers' pledging, the optimal timing to apply stimulus policies has a cutoff-time structure. Lastly, we show that the benefit of contingent policies is greatest in the middle of crowdfunding campaigns. Testing with the dataset of Kickstarter, we obtain empirical evidence that the projects' success rates improve by 14.6% on average with updates in the middle of the campaign and when the pledging progress is lagging.

A cash‐strapped creator's reward‐based crowdfunding strategies with spot sales

“…To be specific, Cumming et al (2020) and Nie et al (2020) conclude that scalable projects are more likely to be funded through the keep-it-all scheme, while Chemla and Tinn (2020) demonstrate that the all-or-nothing scheme weakly dominates the keep-it-all scheme and is more likely to prevail. Moreover, some works examine the crowdfunding problems through dynamic process (Alaei et al, 2016;Du et al, 2022;Hu et al, 2019;Hu, Li, & Shi, 2015). Among them, based on a two-period game model, Hu, Li, and Shi (2015) study the optimal product line design and pricing decisions in reward-based crowdfunding, and Du et al (2022) study the optimal timing of contingently placing a "fulcrum" in crowdfunding, with the potential of tilting the random pledging process from failure to success.…”

“…Moreover, some works examine the crowdfunding problems through dynamic process (Alaei et al, 2016;Du et al, 2022;Hu et al, 2019;Hu, Li, & Shi, 2015). Among them, based on a two-period game model, Hu, Li, and Shi (2015) study the optimal product line design and pricing decisions in reward-based crowdfunding, and Du et al (2022) study the optimal timing of contingently placing a "fulcrum" in crowdfunding, with the potential of tilting the random pledging process from failure to success. Moreover, some works address the question of the optimal design of reward-based crowdfunding, examples being Yang et al (2020), Strausz (2017), Zhang et al (2017), and Ellman and Hurkens (2019).…”

Crowdfunding performance, market performance, and the moderating roles of product innovativeness and experts' judgment: Evidence from the movie industry

“…The rapid growth characterizing this phenomenon and its economic relevance have also merited overwhelming academic interest in the last decade. Researchers have started investigating a number of issues (see Messeni Petruzzelli et al, 2019), such as CF campaign design and performance (e.g., Ahlers et al, 2015; Bapna, 2019; Burtch et al, 2013; Butticé et al, 2017; Chan & Parhankangas, 2017; Colombo et al, 2015; Du et al, 2022; Gleasure et al, 2019; Mollick, 2014; Wei et al, 2021; Zhang & Chen, 2019), choice of funding mechanism (e.g., Cholakova & Clarysse, 2015), funders' behavior and incentives (e.g., Butticé et al, 2017; Colombo et al, 2015; Gleasure et al, 2019; Jiang et al, 2022; Kim, Park, et al, 2022b; Nielsen & Binder, 2021; Testa et al, 2020; Xiao et al, 2021; Zhang & Chen, 2019), as well as relationships and impacts on the financial system and society in general (e.g., Drover et al, 2017; Gao et al, 2021; Mollick & Nanda, 2016; Short et al, 2017; Stanko & Henard, 2017), among others.…”