(Crowd)Funding Innovation: Financing Constraints, Price Discrimination and Welfare
39 Pages Posted: 2 May 2015 Last revised: 16 Jun 2016
Date Written: June 5, 2016
We derive the optimal crowdfunding contract of a financially constrained monopolist and analyze its implications for production, investment and welfare. Crowdfunding contracts may serve as a price-discrimination mechanism, forcing pivotal consumers to pay a premium above the future spot price, thus increasing profits. When raising funds is costly, entrepreneurs balance the benefits from price discrimination against the costs of external financing, and respond to tighter financing constraints by decreasing the degree of price discrimination and increasing production. When crowdfunding is available, reducing the cost of capital, a common policy instrument used for spurring innovation, may unintentionally reduce production and welfare.
Keywords: Crowdfunding, Financing Platforms, Price Discrimination, Financial Constraints
JEL Classification: L1, G23, G32
Suggested Citation: Suggested Citation