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The pricing and efficiency of pre-Sale crowdfunding

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  • Chu, Tiankuo
  • Wei, Xu
  • Zhou, Yimin

Abstract

We construct a theoretical model of pre-sale crowdfunding with the “All-Or-Nothing” principle, in which consumers have multiple valuations on the new product. We find that crowdfunding helps resolve demand uncertainty and avoid over-investment, but also generates negative effects on social efficiency by entailing under-investment and an inefficiently high product price. Further, we show that crowdfunding is more suitable than direct investment when the new product is very costly (high fixed or variable cost), and the dispersion of consumers’ valuations is low.

Suggested Citation

  • Chu, Tiankuo & Wei, Xu & Zhou, Yimin, 2021. "The pricing and efficiency of pre-Sale crowdfunding," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s154461232031607x
    DOI: 10.1016/j.frl.2020.101793
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    References listed on IDEAS

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    1. Douglas J. Cumming & Gaël Leboeuf & Armin Schwienbacher, 2020. "Crowdfunding models: Keep‐It‐All vs. All‐Or‐Nothing," Financial Management, Financial Management Association International, vol. 49(2), pages 331-360, June.
    2. Ellman, Matthew & Hurkens, Sjaak, 2019. "Optimal crowdfunding design," Journal of Economic Theory, Elsevier, vol. 184(C).
    3. Gilles Chemla & Katrin Tinn, 2020. "Learning Through Crowdfunding," Management Science, INFORMS, vol. 66(5), pages 1783-1801, May.
    4. Roland Strausz, 2017. "A Theory of Crowdfunding: A Mechanism Design Approach with Demand Uncertainty and Moral Hazard," American Economic Review, American Economic Association, vol. 107(6), pages 1430-1476, June.
    5. Salahaldin, Linda & Angerer, Martin & Kraus, Sascha & Trabelsi, Donia, 2019. "A duration-based model of crowdfunding project choice," Finance Research Letters, Elsevier, vol. 29(C), pages 404-410.
    6. Thomas Clauss & Robert J. Breitenecker & Sascha Kraus & Alexander Brem & Chris Richter, 2018. "Directing the wisdom of the crowd: the importance of social interaction among founders and the crowd during crowdfunding campaigns," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 27(8), pages 709-729, November.
    7. Viotto da Cruz, Jordana, 2018. "Beyond financing: crowdfunding as an informational mechanism," Journal of Business Venturing, Elsevier, vol. 33(3), pages 371-393.
    8. Linda Salahaldin & Martin Angerer & Sascha Kraus & Donia Trabelsi, 2019. "A duration-based model of crowdfunding project choice," Post-Print hal-02170078, HAL.
    9. Ming Hu & Xi Li & Mengze Shi, 2015. "Product and Pricing Decisions in Crowdfunding," Marketing Science, INFORMS, vol. 34(3), pages 331-345, May.
    10. Roma, Paolo & Messeni Petruzzelli, Antonio & Perrone, Giovanni, 2017. "From the crowd to the market: The role of reward-based crowdfunding performance in attracting professional investors," Research Policy, Elsevier, vol. 46(9), pages 1606-1628.
    11. Schlegel, Friederike & Hakenes, Hendrik, 2014. "Tapping the Financial Wisdom of the Crowd - Crowdfunding as a Tool to Aggregate Vague Information," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100563, Verein für Socialpolitik / German Economic Association.
    12. Strausz, Roland, 2017. "A Theory of Crowdfunding," Rationality and Competition Discussion Paper Series 2, CRC TRR 190 Rationality and Competition.
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    Cited by:

    1. Yurong Pei & Mengying Xie & Qiuling Yang & Yi Liao & Yuping Wu, 2021. "Effect of Consumer Strategic Behavior on Online Presale Strategy," Sustainability, MDPI, vol. 13(19), pages 1-21, October.
    2. Xu, Lei & Li, Dahui & Chiu, Chun-Hung & Zhang, Qing & Gao, Runpeng, 2022. "Implications of warm-glow effect and risk aversion in reward-based crowdfunding," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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