Revenue Management in Crowdfunding

Zhang, Jiding; Savin, Sergei; Veeraraghavan, Senthil K.

doi:10.2139/ssrn.3065267

Cited by 17 publications

(10 citation statements)

References 34 publications

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“…Finally, at a higher level, this paper adds to the growing literature studying the operations of two-sided platforms and marketplaces. In a crowdfunding context, Zhang et al (2017) study how the dynamics of the pledging process affect the optimal pledging level and campaign duration; Chakraborty and Swinney (2021) consider whether entrepreneurs can signal the quality of their product through their choice of crowdfunding campaign parameters; and Babich et al (2020) study how crowdfunding interacts with more traditional financing sources such as venture capital and bank financing. Feldman et al (2021) consider whether food-delivery platforms benefit restaurants.…”

Section: Literature Reviewmentioning

confidence: 99%

Improving Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail

2023

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We study the relative merits of different dispute resolution mechanisms in two-sided platforms in the context of disputes involving malicious reviews and blackmail. We develop a game-theoretic model of the strategic interactions between a seller and a (potentially malicious) consumer. In our model, the seller takes into account the impact of consumer reviews on his future earnings; recognizing this, a malicious consumer may attempt to blackmail the seller by purchasing the product, posting a negative review, and demanding ransom to remove it. Without a dispute resolution mechanism in place, the presence of malicious consumers in the market can lead to a significant decrease in seller profit, especially in settings characterized by high uncertainty about product quality. The introduction of a standard centralized dispute resolution mechanism (whereby the seller can report allegedly malicious reviews to the host platform, which then judges whether to remove the review) can restore efficiency to some extent but requires the platform’s judgments to be both very quick and highly accurate. We demonstrate that a more decentralized mechanism (whereby the firm is allowed to remove reviews without consulting the platform, subject to ex post penalties for wrongdoing) can be much more effective, while simultaneously alleviating—almost entirely—the need for the platform’s judgments to be quick. Our results suggest that decentralization, when implemented correctly, may represent a more efficient approach to dispute resolution. This paper was accepted by Victor Martínez-de-Albéniz, operations management. Funding: S. A. Yang and A. H. Zhang acknowledge the support of the Hong Kong General Research Fund [Grant “Decentralizing Platform Governance: Innovations from China; Project 17614921]. Supplemental Material: The online appendices are available at https://doi.org/10.1287/mnsc.2022.4655 .

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Section: Literature Reviewmentioning

confidence: 99%

Improving Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail

2023

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“…The papers more related to our work are those that focus on the dynamics of crowdfunding pledging processes. Alaei et al (2016) and Zhang et al (2017) study the crowdfunding dynamics to find the optimal upfront design of projects, including goals, duration of crowdfunding campaigns, etc. In contrast, we explore, with the terminology of crowdfunding, how a campaign creator can dynamically adjust backers' arrival rate with her costly effort to maximize the cumulative pledged amount at the end of a crowdfunding campaign.…”

Section: Literature Reviewmentioning

confidence: 99%

Sales Effort Management Under All-or-Nothing Constraint

2022

Management Science

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We consider a sales effort management problem under an all-or-nothing constraint. The seller will receive no bonus/revenue if the sales volume fails to reach a predetermined target at the end of the sales horizon. Throughout the sales horizon, the sales process can be moderated by the seller through costly effort. We show that the optimal sales rate is nonmonotonic with respect to the remaining time or the outstanding sales volume required to reach the target. Generally, it has a watershed structure, such that for any needed sales volume, there exists a cutoff point on the remaining time above which the optimal sales rate decreases in the remaining time and below which it increases in the remaining time. We then study easy-to-compute heuristics that can be implemented efficiently. We start with a static heuristic derived from the deterministic analog of the stochastic problem. With an all-or-nothing constraint, we show that the performance of the static heuristic hinges on how the profit-maximizing rate fares against the target rate, which is defined as the sales target divided by the length of the sales horizon. When the profit-maximizing rate is higher than the target rate, the static heuristic adopting the optimal deterministic rate is asymptotically optimal with negligible loss. On the other hand, when the profit-maximizing rate is lower than the target rate, the performance loss of any asymptotically optimal static heuristic is of an order greater than the square root of the scale parameter. To address the poor performance of the static heuristic in the latter case, we propose a modified resolving heuristic and show that it is asymptotically optimal and achieves a logarithmic performance loss. This paper was accepted by Gabriel Weintraub, revenue management and market analytics.

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“…A number of subsequent theoretical and empirical works have attempted to understand and offer explanations for this phenomenon. Zhang et al (2017) consider different categories of contributors to explain different observed contribution patterns: “ordinary” backers pledge throughout the campaign duration while “herding” backers arrive at the end and pledge only if the campaign is successful. Zvilichovsky et al (2018) experimentally show that when fixed funding campaigns are about to end and their target is within reach, contributors think they are pivotal to campaign success and pledge to “make the product happen,” leading to a last‐minute surge.…”

Section: Related Literaturementioning

confidence: 99%

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

Chakraborty

Swinney

2022

Naval Research Logistics

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In rewards‐based crowdfunding, entrepreneurs solicit donations from a large number of individual contributors. If total donations exceed a prespecified funding target, the entrepreneur distributes nonmonetary rewards to contributors; otherwise, their donations are refunded. We study how to design such campaigns when contributors choose not just whether to contribute, but also when to contribute. We show that strategic contribution behavior—when contributors intentionally delay until campaign success is likely—can arise from the combination of nonrefundable (potentially very small) hassle costs and the risk of campaign failure, and can explain pledging patterns commonly observed in crowdfunding. Furthermore, such delays do not hurt the entrepreneur if contributors are perfectly rational, but they do if contributors are distracted, that is, if they might fail to return to the campaign after an intentional delay. To mitigate this, we find that an entrepreneur can use a simple menu of rewards with a fixed number of units sold at a low price, and an unlimited number sold at a higher price; this segments contributors over time based on the information they observe upon arrival. We show that, despite its simplicity, such a menu performs well compared to a theoretically optimal menu consisting of an infinite number of different rewards and price levels under many conditions.

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Revenue Management in Crowdfunding

Cited by 17 publications

References 34 publications

Improving Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail

Improving Dispute Resolution in Two-Sided Platforms: The Case of Review Blackmail

Sales Effort Management Under All-or-Nothing Constraint

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

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