Coordination and Dynamic Promotion Strategies in Crowdfunding with Network Externalities

Production and Operations Management, Forthcoming

45 Pages Posted: 9 Oct 2014 Last revised: 17 Dec 2019

See all articles by Zhuoxin Li

Zhuoxin Li

University of Wisconsin-Madison - Wisconsin School of Business

Jason A. Duan

University of Texas at Austin

Sam Ransbotham

Boston College - Carroll School of Management

Date Written: September 30, 2014

Abstract

Crowdfunding, a peer-to-peer fundraising mechanism, solicits capital from individual backers to support entrepreneurial projects. Entrepreneurs set a funding target and deadline; the project will be funded only if it reaches this funding target by the deadline. Backers individually decide whether to contribute, but their total contributions collectively determine whether the project will be successfully funded. This paper models the dynamics of backers' contributions in the presence of success uncertainty and analyzes managerial promotion strategies to maximize the likelihood of funding success. Two opposing forces affect backer decisions: backers are more likely to back a project that has already reached a greater fraction of its funding goal (positive externalities), but the backing propensity declines over time (negative deadline effects). These two competing forces give rise to a time-dependent critical threshold of funding that a project must attain to achieve successful funding. We evaluate actionable promotion strategies (when to promote the project and how much promotion effort to spend) for entrepreneurs to dynamically manage their crowdfunding campaigns.

Keywords: entrepreneurial financing; innovation; entrepreneurship; resource allocation; critical mass; tipping; crowdfunding; social media; simulation; analytics

Suggested Citation

Li, Zhuoxin and Duan, Jason A. and Ransbotham, Sam, Coordination and Dynamic Promotion Strategies in Crowdfunding with Network Externalities (September 30, 2014). Production and Operations Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2506352 or http://dx.doi.org/10.2139/ssrn.2506352

Zhuoxin Li (Contact Author)

University of Wisconsin-Madison - Wisconsin School of Business ( email )

Jason A. Duan

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Sam Ransbotham

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

HOME PAGE: http://www.SamRansbotham.com

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