Attracting the Right Crowd under Asymmetric Information: A Game Theory Application to Rewards-Based Crowdfunding

Abstract

In this paper, we investigate rewards-based crowdfunding as an innovative financing form for startups and firms. Based on game-theory models under asymmetric information, we test research hypotheses about the positive effects of two main campaign features: funding target and number of rewards. Furthermore, we examine how and when these characteristics are effective in attracting crowdfunders, by signaling high-quality projects (target) and by pricing according to backers’ preferences (rewards). Conditional process analysis is applied to a dataset of 1613 projects launched on the Spanish platform Verkami from 2015 to 2018. As expected, our study shows that market size is positively influenced by the target and the number of rewards, separately. Further analysis gives some interesting findings. Firstly, we find significant and positive mediating roles of social networks (in the relationship between target and market size) and of backers’ preferences (between rewards and market size). Secondly, the main orientation of a campaign, commercial or social, is relevant to explain previous relationships. While high funding targets are more effective in commercial projects, a high number of rewards is more effective in the social projects. This research provides new insights into the design of optimal crowdfunding, with theoretical and empirical implications.

Impact of Broadband China Infrastructure Strategy on Fintech: A Quasi-Natural Experiment

“…First, according to the theory of financial intermediation, the main reasons for financial intermediation are information asymmetry and transaction costs. Most scholars believe that information asymmetry exists in the development of fintech, such as in the crowdfunding business, where investors have limited ways of understanding the quality of the project because the product has not yet been introduced to the market, and then face the results of misappropriation of funds and the possibility of misrepresentation of the product's specifications, which makes it a high-risk area [31,32]. In the digital economy, with relatively weak infrastructure, this problem may be further exacerbated, developing into a data asymmetry dilemma.…”

Crowdfunding small businesses and startups: a systematic review, an appraisal of theoretical insights and future research directions

“…In the past decade, a number of individuals, groups, organizations as well as entrepreneurs and startups resorted to crowdfunding, to finance their ideas, ventures or projects (Mollick, 2014;Troise, Tani and Jones, 2020). Various researchers focused on specific crowdfunding products like donation-based crowdfunding (Lazzaro and Noonan, 2021), rewards-based crowdfunding (Boylan et al, 2018;Cox and Nguyen, 2018;Jiménez-Jiménez et al, 2021;Zhao et al, 2018), equity crowdfunding (Bonini and Capizzi, 2019;Feola et al, 2021;Goethner et al, 2021;Hornuf and Schwienbacher, 2017;Hornuf and Schwienbacher, 2018;Lee, 2019;Lin and Wang, 2021;Mamonov et al, 2017), peer-to-peer (P2P) lending/lending crowdfunding (Boylan et al, 2018;Kgoroeadira et al, 2019;Polena and Regner, 2018), and debt-securities crowdfunding (Boylan et al, 2018;Cox and Nguyen, 2018;Gan et al, 2021;Subramanian, 2020), among other investment opportunities.…”

“…These online users hope to identify lucrative investment opportu4nities that could yield them attractive returns. Such investors may be drawn by high-quality, market-oriented (commercial) projects and by their rewards, as opposed to community-oriented, not-for-profit projects with social or environmental purposes (Camilleri, 2021a), that may be promoted via low minimum prices, to appeal to sponsors (Jiménez-Jiménez et al, 2021).…”