IDEAS home Printed from https://ideas.repec.org/p/zbw/bamber/118.html
   My bibliography  Save this paper

Advance-purchase financing of projects with few buyers

Author

Listed:
  • Sahm, Marco

Abstract

I investigate a simple model of advance-purchase contracts as a mode of financing costly projects. An entrepreneur has to meet some capital requirement in order to start production and sell the related good to a limited number of potential buyers who are privately informed about their willingness to pay. I find that advance-purchase arrangements enable more costly projects to be financed than traditional funding sources. The entrepreneur uses advance-purchase surcharges as a price discrimination device. However, the discriminatory power is limited by the problem of free-riding, which is exacerbated as the number of potential buyers increases.

Suggested Citation

  • Sahm, Marco, 2016. "Advance-purchase financing of projects with few buyers," BERG Working Paper Series 118, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:118
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/152259/1/879408588.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Strausz, Roland, 2015. "Crowdfunding, demand uncertainty, and moral hazard: A mechanism design approach," SFB 649 Discussion Papers 2015-036, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Schmitt, Noemi & Westerhoff, Frank, 2014. "Speculative behavior and the dynamics of interacting stock markets," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 262-288.
    3. Noemi Schmitt & Frank Westerhoff, 2017. "Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1041-1070, November.
    4. Tuinstra, Jan & Wegener, Michael & Westerhoff, Frank, 2013. "Positive welfare effects of trade barriers in a dynamic equilibrium model," BERG Working Paper Series 91, Bamberg University, Bamberg Economic Research Group.
    5. González-Díaz, Julio & Herold, Florian & Domínguez, Diego, 2016. "Strategic sequential voting," BERG Working Paper Series 113, Bamberg University, Bamberg Economic Research Group.
    6. Bexheti, Abdylmenaf & Mustafi, Besime, 2015. "Impact of public funding of education on economic growth in Macedonia," BERG Working Paper Series 98, Bamberg University, Bamberg Economic Research Group.
    7. Herber, Stefanie P. & Kalinowski, Michael, 2016. "Non-take-up of student financial aid: A microsimulation for Germany," BERG Working Paper Series 109, Bamberg University, Bamberg Economic Research Group.
    8. Westerhoff, Frank & Franke, Reiner, 2012. "Agent-based models for economic policy design: Two illustrative examples," BERG Working Paper Series 88, Bamberg University, Bamberg Economic Research Group.
    9. Lena Dräger & Christian R. Proaño, 2015. "Cross-Border Banking and Business Cycles in Asymmetric Currency Unions," Macroeconomics and Finance Series 201501, University of Hamburg, Department of Socioeconomics.
    10. Guido Heineck, 2014. "Love Thy Neighbor: Religion and Prosocial Behavior," SOEPpapers on Multidisciplinary Panel Data Research 704, DIW Berlin, The German Socio-Economic Panel (SOEP).
    11. March, Christoph & Sahm, Marco, 2017. "Asymmetric discouragement in asymmetric contests," Economics Letters, Elsevier, vol. 151(C), pages 23-27.
    12. 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.
    13. Ellman, Matthew & Hurkens, Sjaak, 2019. "Optimal crowdfunding design," Journal of Economic Theory, Elsevier, vol. 184(C).
    14. Silke Anger & Daniel D. Schnitzlein, 2017. "Cognitive skills, non-cognitive skills, and family background: evidence from sibling correlations," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(2), pages 591-620, April.
    15. Pierre Dubois & Olivier de Mouzon & Fiona Scott-Morton & Paul Seabright, 2015. "Market size and pharmaceutical innovation," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 844-871, October.
    16. Stefanie P. Herber & Michael Kalinowski, 2016. "Non-Take-Up of Student Financial Aid: A Microsimulation for Germany," SOEPpapers on Multidisciplinary Panel Data Research 844, DIW Berlin, The German Socio-Economic Panel (SOEP).
    17. Herold, Florian & Kuzmics, Christoph, 2020. "The evolution of taking roles," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 38-63.
    18. Planer-Friedrich, Lisa & Sahm, Marco, 2016. "Why firms should care for all consumers," BERG Working Paper Series 116, Bamberg University, Bamberg Economic Research Group.
    19. Chenhang Zeng, 2013. "Optimal Advance Selling Strategy under Price Commitment," Pacific Economic Review, Wiley Blackwell, vol. 18(2), pages 233-258, May.
    20. Herber, Stefanie P., 2015. "The role of information in the application for merit-based scholarships: Evidence from a randomized field experiment," BERG Working Paper Series 95, Bamberg University, Bamberg Economic Research Group.
    21. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-146, March.
    22. Philipp Mundt & Simone Alfarano & Mishael Milakovic, 2016. "Gibrat’s Law Redux: think profitability instead of growth," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(4), pages 549-571.
    23. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
    24. Tramontana, Fabio & Westerhoff, Frank & Gardini, Laura, 2013. "The bull and bear market model of Huang and Day: Some extensions and new results," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2351-2370.
    25. Fatoke-Dato, Mafaïzath A., 2015. "Impact of an educational demand-and-supply policy on girls' education in West Africa: Heterogeneity in income, school environment and ethnicity," BERG Working Paper Series 101, Bamberg University, Bamberg Economic Research Group.
    26. Meyer, Dietmar & Shera, Adela, 2015. "Remittances' impact on the labor supply and on the deficit of current account," BERG Working Paper Series 97, Bamberg University, Bamberg Economic Research Group.
    27. Herber, Stefanie P. & Kalinowski, Michael, 2016. "Non-take-up of Student Financial Aid: A Microsimulation for Germany," VfS Annual Conference 2016 (Augsburg): Demographic Change 145727, Verein für Socialpolitik / German Economic Association.
    28. Lojak, Benjamin, 2016. "Sentiment-driven investment, non-linear corporate debt dynamics and co-existing business cycle regimes," BERG Working Paper Series 112, Bamberg University, Bamberg Economic Research Group.
    29. Dieci, Roberto & Westerhoff, Frank, 2015. "Heterogeneous expectations, boom-bust housing cycles, and supply conditions: A nonlinear dynamics approach," BERG Working Paper Series 99, Bamberg University, Bamberg Economic Research Group.
    30. Noemi Schmitt & Frank Westerhoff, 2017. "Herding behaviour and volatility clustering in financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 17(8), pages 1187-1203, August.
    31. Herber, Stefanie P. & Quis, Johanna Sophie & Heineck, Guido, 2017. "Does the transition into daylight saving time affect students’ performance?," Economics of Education Review, Elsevier, vol. 61(C), pages 130-139.
    32. Brito, Dagobert L & Oakland, William H, 1980. "On the Monopolistic Provision of Excludable Public Goods," American Economic Review, American Economic Association, vol. 70(4), pages 691-704, September.
    33. Quis, Johanna Sophie, 2015. "Does higher learning intensity affect student well-being? Evidence from the National Educational Panel Study," BERG Working Paper Series 94, Bamberg University, Bamberg Economic Research Group.
    34. Schmitt, Noemi & Westerhoff, Frank, 2018. "Evolutionary Competition And Profit Taxes: Market Stability Versus Tax Burden," Macroeconomic Dynamics, Cambridge University Press, vol. 22(8), pages 2007-2031, December.
    35. Herber, Stefanie, 2015. "The Role of Information in the Application for Merit-Based Scholarships: Evidence from a Randomized Field Experiment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113058, Verein für Socialpolitik / German Economic Association.
    36. Cornelli, Francesca, 1996. "Optimal Selling Procedures with Fixed Costs," Journal of Economic Theory, Elsevier, vol. 71(1), pages 1-30, October.
    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. Martin Carolin & Westerhoff Frank, 2019. "Regulating Speculative Housing Markets via Public Housing Construction Programs: Insights from a Heterogeneous Agent Model," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(4), pages 627-660, August.
    2. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    3. Roberto Dieci & Noemi Schmitt & Frank Westerhoff, 2018. "Steady states, stability and bifurcations in multi-asset market models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 357-378, November.
    4. Hommes, Cars & Lustenhouwer, Joep & Mavromatis, Kostas, 2018. "Fiscal consolidations and heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 173-205.
    5. Lustenhouwer, Joep & Mavromatis, Kostas, 2017. "Fiscal consolidations and finite planning horizons," BERG Working Paper Series 130, Bamberg University, Bamberg Economic Research Group.
    6. Joyee Deb & Aniko Oery & Kevin R. Williams, 2018. "Aiming for the Goal: Contribution Dynamics of Crowdfunding," Cowles Foundation Discussion Papers 2149, Cowles Foundation for Research in Economics, Yale University.
    7. Mundt, Philipp & Oh, Ilfan, 2019. "Asymmetric competition, risk, and return distribution," BERG Working Paper Series 145, Bamberg University, Bamberg Economic Research Group.
    8. Sahm, Marco, 2017. "Risk aversion and prudence in contests," BERG Working Paper Series 120, Bamberg University, Bamberg Economic Research Group.
    9. Proaño, Christian R. & Lojak, Benjamin, 2020. "Animal spirits, risk premia and monetary policy at the zero lower bound," Journal of Economic Behavior & Organization, Elsevier, vol. 171(C), pages 221-233.
    10. Hommes, Cars & Lustenhouwer, Joep, 2019. "Managing unanchored, heterogeneous expectations and liquidity traps," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 1-16.
    11. Sahm, Marco, 2017. "Are sequential round-robin tournaments discriminatory?," BERG Working Paper Series 121, Bamberg University, Bamberg Economic Research Group.

    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. Sahm, Marco, 2017. "Are sequential round-robin tournaments discriminatory?," BERG Working Paper Series 121, Bamberg University, Bamberg Economic Research Group.
    2. March, Christoph & Sahm, Marco, 2017. "Asymmetric discouragement in asymmetric contests," Economics Letters, Elsevier, vol. 151(C), pages 23-27.
    3. Sahm, Marco, 2017. "Risk aversion and prudence in contests," BERG Working Paper Series 120, Bamberg University, Bamberg Economic Research Group.
    4. Herold, Florian & Kuzmics, Christoph, 2020. "The evolution of taking roles," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 38-63.
    5. González-Díaz, Julio & Herold, Florian & Domínguez, Diego, 2016. "Strategic sequential voting," BERG Working Paper Series 113, Bamberg University, Bamberg Economic Research Group.
    6. Lojak, Benjamin, 2016. "Sentiment-driven investment, non-linear corporate debt dynamics and co-existing business cycle regimes," BERG Working Paper Series 112, Bamberg University, Bamberg Economic Research Group.
    7. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    8. Dräger, Lena & Proaño, Christian R., 2015. "Cross-border banking and business cycles in asymmetric currency unions," Discussion Papers 21/2015, Deutsche Bundesbank.
    9. Noemi Schmitt & Frank Westerhoff, 2017. "Herding behaviour and volatility clustering in financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 17(8), pages 1187-1203, August.
    10. Proaño, Christian R. & Lojak, Benjamin, 2015. "Debt stabilization and macroeconomic volatility in monetary unions under heterogeneous sovereign risk perceptions," BERG Working Paper Series 106, Bamberg University, Bamberg Economic Research Group.
    11. Lustenhouwer, Joep & Mavromatis, Kostas, 2017. "Fiscal consolidations and finite planning horizons," BERG Working Paper Series 130, Bamberg University, Bamberg Economic Research Group.
    12. Fatoke Dato, Mafaizath A., 2015. "Impact of income shock on children’s schooling and labor in a West African country," MPRA Paper 64317, University Library of Munich, Germany.
    13. Hommes, Cars & Lustenhouwer, Joep & Mavromatis, Kostas, 2018. "Fiscal consolidations and heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 173-205.
    14. Hommes, Cars & Lustenhouwer, Joep, 2019. "Managing unanchored, heterogeneous expectations and liquidity traps," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 1-16.
    15. Schmitt, Noemi & Tuinstra, Jan & Westerhoff, Frank, 2017. "Side effects of nonlinear profit taxes in an evolutionary market entry model: Abrupt changes, coexisting attractors and hysteresis problems," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 15-38.
    16. Schmitt, Noemi & Westerhoff, Frank, 2018. "Evolutionary Competition And Profit Taxes: Market Stability Versus Tax Burden," Macroeconomic Dynamics, Cambridge University Press, vol. 22(8), pages 2007-2031, December.
    17. Roberto Dieci & Noemi Schmitt & Frank Westerhoff, 2018. "Steady states, stability and bifurcations in multi-asset market models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 357-378, November.
    18. Martin Carolin & Westerhoff Frank, 2019. "Regulating Speculative Housing Markets via Public Housing Construction Programs: Insights from a Heterogeneous Agent Model," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(4), pages 627-660, August.
    19. Fatoke-Dato, Mafaïzath A., 2015. "Impact of an educational demand-and-supply policy on girls' education in West Africa: Heterogeneity in income, school environment and ethnicity," BERG Working Paper Series 101, Bamberg University, Bamberg Economic Research Group.
    20. Bexheti, Abdylmenaf & Mustafi, Besime, 2015. "Impact of public funding of education on economic growth in Macedonia," BERG Working Paper Series 98, Bamberg University, Bamberg Economic Research Group.

    More about this item

    Keywords

    pre-ordering; price discrimination; excludable public goods; monopolistic provision; crowdfunding; innovation and R&D;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:zbw:bamber:118. 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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bebamde.html .

    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.