Crowdfunding Platforms: The Role of Information Providers
35 Pages Posted: 1 Sep 2016
Date Written: August 31, 2016
Despite the popular emergence of crowdfunding platforms, relevant research investigating the role of these platforms in crowdfunding markets still lags. In this paper, we present a model to study market incentives of crowdfunding platforms' optimal information reporting strategy when there exists uncertainty on projects' returns. We assume that platforms on the market are rational players, and they seek to stay on the market as long as possible as accurate information providers. We characterize platforms' equilibrium reporting strategies under different market conditions. Surprisingly, we find that under certain conditions, the potential competition from a new entrant gives the incumbent crowdfunding platform an incentive to bias the information on borrowers' risky projects. However, the uncertainty resolution provided by a third party (e.g., regulator, media) could reduce the incentive. Our findings contribute to the literature on crowdfunding by analyzing platform decisions, and offer policy implications for the regulations of crowdfunding markets.
Keywords: crowdfunding platforms, information provider, financial intermediaries, asymmetric information, Bayesian update, perfect Bayesian equilibrium
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