Designing rewards‐based crowdfunding campaigns for strategic (but distracted) contributors

Chakraborty, Soudipta; Ma, Anyi; Swinney, Robert

doi:10.1002/nav.22081

Cited by 13 publications

(5 citation statements)

References 23 publications

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“…In reward‐based crowdfunding, information asymmetry between founders and backers at the project level is the difference between the project information possessed by founders and the project information provided by the founder and used by backers . Such information asymmetry is prevalent in crowdfunding (e.g., Chakraborty and Swinney 2019, Courtney et al. 2017); it can hinder fundraising, leading to market inefficiencies or failures including adverse selection, moral hazard, and the collective actions of backers (Agrawal et al.…”

Section: Theory and Hypothesesmentioning

confidence: 99%

“…(2015) investigated optimal product lines and pricing strategies in a two‐period game where backers make decisions sequentially. In an AON scenario where backers have an incentive to strategically wait until success is certain before participating, Chakraborty and Swinney (2019) demonstrated that optimal reward menu designs can mitigate such strategic behaviors. Taking a different approach, Zhang et al.…”

Section: Literature Reviewmentioning

confidence: 99%

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An Empirical Study of the Dynamic and Differential Effects of Prefunding

Wei

Fan

You

et al. 2021

Production and Operations Management

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This study investigates the dynamic and differential effects of prefunding on reward‐based crowdfunding markets plagued by information asymmetry. Prefunding, an innovative feature in crowdfunding, enables founders to share project information with potential backers before fundraising begins. By collecting and analyzing daily project‐level panel data from one of the world's largest crowdfunding platforms, we found that projects with the prefunding feature were more likely to succeed in reaching their funding goals and the effects of prefunding on the amount of funds raised remained positive and significant over time. In probing why this occurred, we used text analyses and revealed that the mechanisms driving the funding premium were the specific types of prefunding information shared between founders and potential backers (volume, length, and sentiment). Furthermore, in examining the sources of funds, we found that prefunding information first attracts funding from regular backers, followed by lottery backers. This herding behavior creates two intertwined funding streams—a primary and a secondary—for prefunding projects. Finally, using counterfactual decomposition analysis, we identified the types of projects that benefited the most from prefunding and found that prefunding democratizes funding outcomes. These findings and insights into information sharing, herding, and differential effects of prefunding contribute to the OM‐IS research on operational designs of reward‐based crowdfunding platforms that serve early‐stage ventures in online environments with minimal informational oversight and regulations.

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Section: Theory and Hypothesesmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

An Empirical Study of the Dynamic and Differential Effects of Prefunding

Wei

Fan

You

et al. 2021

Production and Operations Management

View full text Add to dashboard Cite

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“…Chakraborty et al. (2022) suggest a multireward strategy with limited quantities for the more attractive options to mitigate the strategic behavior of backers (who delay pledging until the campaign is more likely to succeed). Zhang et al.…”

Section: Literature Reviewmentioning

confidence: 99%

Contingent stimulus in crowdfunding

2022

Production and Operations Management

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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.

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“…Bolandifar et al (2020) and Chakraborty and Swinney (2021) study the creator's signaling problem while designing the crowdfunding campaign. Also, Chakraborty et al (2021) study how to design crowdfunding campaigns when consumers choose not just whether to contribute, but also when to contribute with market uncertainty. However, none of the above studies capture the effects of spot sales and market uncertainty simultaneously (including the consumer's uncertain value and the uncertain market size).…”

Section: Literature Reviewmentioning

confidence: 99%

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

Guo

Qian

et al. 2022

Naval Research Logistics

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Reward‐based crowdfunding with the all‐or‐nothing mechanism helps cash‐strapped creators raise funds from potential consumers to develop new products. However, this mechanism may hurt the creator in the long run because possible buying frenzies of strategic consumers will cannibalize the demand for spot sales if the project succeeds with overfunding. Through a two‐period model incorporating a crowdfunding period and a spot sales period, we find that strategic consumers' purchasing decisions depend on the probability that they will like the product in spot sales. Moreover, we show that crowdfunding cannot be used to finance when the setup cost that a creator needs to pay for the production is sufficiently high. In addition, for creators who can use crowdfunding to finance, contrary to the intuition that they should not take risks when the market uncertainty is high, we find the opposite results when we take the joint effect of the setup cost and market uncertainty into consideration. To be specific, when the market uncertainty is high and the setup cost is higher than a threshold, the creator can optimally choose the risky strategy. Furthermore, the creator may benefit from market uncertainty when a high setup cost is required to launch the product.

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Designing rewards‐based crowdfunding campaigns for strategic (but distracted) contributors

Cited by 13 publications

References 23 publications

An Empirical Study of the Dynamic and Differential Effects of Prefunding

An Empirical Study of the Dynamic and Differential Effects of Prefunding

Contingent stimulus in crowdfunding

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

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