IDEAS home Printed from https://ideas.repec.org/a/spr/joptap/v196y2023i1d10.1007_s10957-022-02117-9.html
   My bibliography  Save this article

Pricing and Quality Strategies in Crowdfunding with Network Externality

Author

Listed:
  • Yang Xu

    (Anhui University of Finance and Economics)

  • Xu Wang

    (University of Science and Technology of China)

  • Qiang Zhou

    (University of Science and Technology of China)

Abstract

To improve the financing performance, optimization models have been developed to analyze the operation mechanism of crowdfunding. However, network externality, which has proven to exist in crowdfunding, was ignored in previous studies. In order to address this gap, we construct an optimization model incorporating network externality and investigate its impact on crowdfunding operation decisions. Our analysis reveals that network externality does not monotonously influence optimal prices, while it always improves the project quality. In addition, we prove that although network externality increases the creator’s profit, it increases the price discrimination level and may hurt consumers, thus reducing social welfare. In extensions, we investigate the effects of demand uncertainty, external financing, and word-of-mouth effect on the optimal decisions. Our work not only provides managerial implications for crowdfunding activities, but also reveals the potential negative effects of network externality for platforms.

Suggested Citation

  • Yang Xu & Xu Wang & Qiang Zhou, 2023. "Pricing and Quality Strategies in Crowdfunding with Network Externality," Journal of Optimization Theory and Applications, Springer, vol. 196(1), pages 98-125, January.
    • Handle: RePEc:spr:joptap:v:196:y:2023:i:1:d:10.1007_s10957-022-02117-9
    DOI: 10.1007/s10957-022-02117-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10957-022-02117-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10957-022-02117-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Peter Younkin & Venkat Kuppuswamy, 2018. "The Colorblind Crowd? Founder Race and Performance in Crowdfunding," Management Science, INFORMS, vol. 64(7), pages 3269-3287, July.
    2. Gilles Chemla & Katrin Tinn, 2020. "Learning Through Crowdfunding," Management Science, INFORMS, vol. 66(5), pages 1783-1801, May.
    3. Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June.
    4. Daniel Blaseg & Christian Schulze & Bernd Skiera, 2020. "Consumer Protection on Kickstarter," Marketing Science, INFORMS, vol. 39(1), pages 211-233, January.
    5. Hanna Halaburda & Bruno Jullien & Yaron Yehezkel, 2020. "Dynamic competition with network externalities: how history matters," RAND Journal of Economics, RAND Corporation, vol. 51(1), pages 3-31, March.
    6. Mollick, Ethan, 2014. "The dynamics of crowdfunding: An exploratory study," Journal of Business Venturing, Elsevier, vol. 29(1), pages 1-16.
    7. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    8. Zhuoxin Li & Jason A. Duan & Sam Ransbotham, 2020. "Coordination and Dynamic Promotion Strategies in Crowdfunding with Network Externalities," Production and Operations Management, Production and Operations Management Society, vol. 29(4), pages 1032-1049, April.
    9. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
    10. Ming Hu & Xi Li & Mengze Shi, 2015. "Product and Pricing Decisions in Crowdfunding," Marketing Science, INFORMS, vol. 34(3), pages 331-345, May.
    11. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    12. Gerrit K.C. Ahlers & Douglas Cumming & Christina Günther & Denis Schweizer, 2015. "Signaling in Equity Crowdfunding," Entrepreneurship Theory and Practice, , vol. 39(4), pages 955-980, July.
    13. Bi, Gongbing & Geng, Botao & Liu, Lindong, 2019. "On the fixed and flexible funding mechanisms in reward-based crowdfunding," European Journal of Operational Research, Elsevier, vol. 279(1), pages 168-183.
    14. Yanju Zhou & Jie Zhang & Yumei Zeng, 2021. "Borrowing or crowdfunding: a comparison of poverty alleviation participation modes considering altruistic preferences," International Journal of Production Research, Taylor & Francis Journals, vol. 59(21), pages 6564-6578, November.
    15. Hahn, Jong-Hee, 2003. "Nonlinear pricing of telecommunications with call and network externalities," International Journal of Industrial Organization, Elsevier, vol. 21(7), pages 949-967, September.
    16. Praveen Kumar & Nisan Langberg & David Zvilichovsky, 2020. "Crowdfunding, Financing Constraints, and Real Effects," Management Science, INFORMS, vol. 66(8), pages 3561-3580, August.
    17. Sofia Bapna & Martin Ganco, 2021. "Gender Gaps in Equity Crowdfunding: Evidence from a Randomized Field Experiment," Management Science, INFORMS, vol. 67(5), pages 2679-2710, May.
    18. Jing, Bing, 2007. "Network externalities and market segmentation in a monopoly," Economics Letters, Elsevier, vol. 95(1), pages 7-13, April.
    19. Ajay K. Agrawal & Christian Catalini & Avi Goldfarb, 2011. "The Geography of Crowdfunding," NBER Working Papers 16820, National Bureau of Economic Research, Inc.
    20. Silvio Vismara, 2016. "Equity retention and social network theory in equity crowdfunding," Small Business Economics, Springer, vol. 46(4), pages 579-590, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xu, Yang & Zhou, Qiang & Wang, Xu, 2023. "Joint price and quality optimization strategy in crowdfunding campaign," International Journal of Production Economics, Elsevier, vol. 263(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xu, Yang & Zhou, Qiang & Wang, Xu, 2023. "Joint price and quality optimization strategy in crowdfunding campaign," International Journal of Production Economics, Elsevier, vol. 263(C).
    2. Lv, Jiancheng & Bi, Gongbing & Xu, Yang, 2023. "Crowdfunding pricing and quality overstatement in the presence of platform regulation," Journal of Retailing and Consumer Services, Elsevier, vol. 70(C).
    3. Xu, Shengshuo & Ling, Liuyi & Du, Shaofu & Liu, Lindong, 2023. "Crowdfunding or traditional mode? Strategy choices in product selling," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 172(C).
    4. Xiahua Wei & Ming Fan & Weijia You & Yong Tan, 2021. "An Empirical Study of the Dynamic and Differential Effects of Prefunding," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1331-1349, May.
    5. Carla Martínez-Climent & Ricardo Costa-Climent & Pejvak Oghazi, 2019. "Sustainable Financing through Crowdfunding," Sustainability, MDPI, vol. 11(3), pages 1-16, February.
    6. Sun, Yanhong & Sheng, Yiyun & Yan, Shuai & Zhang, Wei, 2023. "Pricing strategies in reward-based crowdfunding: Whether to introduce price guarantee?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).
    7. Armin Schwienbacher, 2018. "Entrepreneurial risk-taking in crowdfunding campaigns," Small Business Economics, Springer, vol. 51(4), pages 843-859, December.
    8. Naixin Zhu, 2023. "Dissertation on Applied Microeconomics of Freemium Pricing Strategies in Mobile App Market," Papers 2305.09479, arXiv.org.
    9. Longyuan Du & Ming Hu & Jiahua Wu, 2022. "Contingent stimulus in crowdfunding," Production and Operations Management, Production and Operations Management Society, vol. 31(9), pages 3543-3558, September.
    10. Hadar Gafni & Marek Hudon & Anaïs Périlleux, 2021. "Business or Basic Needs? The Impact of Loan Purpose on Social Crowdfunding Platforms," Journal of Business Ethics, Springer, vol. 173(4), pages 777-793, November.
    11. Estrin, Saul & Gozman, Daniel & Khavul, Susanna, 2017. "Equity crowdfunding and early stage entrepreneurial finance: damaging or disruptive?," LSE Research Online Documents on Economics 86590, London School of Economics and Political Science, LSE Library.
    12. Bergmann, Ariel & Burton, Bruce & Klaes, Matthias, 2021. "European perceptions on crowdfunding for renewables: Positivity and pragmatism," Ecological Economics, Elsevier, vol. 179(C).
    13. Navarro, Noemí, 2012. "Price and quality decisions under network effects," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 263-270.
    14. Ciro Troise, 2020. "Marketing Strategies in Equity Crowdfunding: A Comparative Study of Italian Platforms," International Journal of Marketing Studies, Canadian Center of Science and Education, vol. 11(4), pages 1-16, March.
    15. Elitzur, Ramy & Solodoha, Eliran, 2021. "Does gender matter? Evidence from crowdfunding," Journal of Business Venturing Insights, Elsevier, vol. 16(C).
    16. Daniel Birke, 2009. "The Economics Of Networks: A Survey Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 762-793, September.
    17. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    18. Saif Ullah & Yulin Zhou, 2020. "Gender, Anonymity and Team: What Determines Crowdfunding Success on Kickstarter," JRFM, MDPI, vol. 13(4), pages 1-26, April.
    19. Sha Zhou & Tao Ma & Zhengchi Liu, 2021. "Crowdfunding as a screener for collective investment," Electronic Commerce Research, Springer, vol. 21(1), pages 195-221, March.
    20. Messeni Petruzzelli, Antonio & Natalicchio, Angelo & Panniello, Umberto & Roma, Paolo, 2019. "Understanding the crowdfunding phenomenon and its implications for sustainability," Technological Forecasting and Social Change, Elsevier, vol. 141(C), pages 138-148.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joptap:v:196:y:2023:i:1:d:10.1007_s10957-022-02117-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.