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A Theory of Crowdfunding Dynamics

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  • Matthew Ellman
  • Michele Fabi

Abstract

This paper develops a dynamic model of crowdfunding to characterize success rates and welfare and to identify optimal transparency and design policies. We also characterize average bidding profiles. Bidding costs generate two dynamic forces: (1) decreasing pivotality, driven by reduced scope for strategic complementarity as the deadline nears, pushes the slope downwards; (2) a news effect from observed bidding further pushes the slope downwards for concave cost distributions, but upwards for convex costs. These effects can explain prominent bidding patterns. Non-disclosure of funding progress yields higher welfare than full transparency given homogeneous costs. However, cost heterogeneity favours disclosure by enabling early bidders to activate otherwise passive, higher cost bidders. We also investigate the tradeoff between raising prices and thresholds and we demonstrate success and welfare gains from the indirect dynamic pricing permitted by current platforms.

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  • Matthew Ellman & Michele Fabi, 2022. "A Theory of Crowdfunding Dynamics," Working Papers 1349, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1349
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    References listed on IDEAS

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    Cited by:

    1. Joyee Deb & Aniko Oery & Kevin R. Williams, 2018. "Aiming for the Goal: Contribution Dynamics of Crowdfunding," Cowles Foundation Discussion Papers 2149R2, Cowles Foundation for Research in Economics, Yale University, revised Feb 2023.

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    More about this item

    Keywords

    crowdfunding dynamics; subscription games; information acquisition; pivotality; strategic complementarity; disclosure rules;
    All these keywords.

    JEL classification:

    • D26 - Microeconomics - - Production and Organizations - - - Crowd-Based Firms
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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