Effects of Scarcity-Induced Demand on the Crowdfunding Market

41 Pages Posted: 8 Feb 2019 Last revised: 3 Dec 2019

See all articles by Zhijin Zhou

Zhijin Zhou

University of Washington - Michael G. Foster School of Business

Chaoliang Ma

University of Science and Technology of China (USTC)

Yong Tan

University of Washington - Michael G. Foster School of Business

Date Written: January 27, 2019

Abstract

Fundraisers on reward-based crowdfunding platforms have increasingly sought to base their promotional strategy on the scarcity principle. These fundraisers intentionally manipulate individuals’ perceived scarcity of the rewards by restricting their ability to purchase, with an attempt to increase the subjective desirability of the offering. Although previous studies have documented favorable outcomes of this tactic in various offline markets, the consequences of its use in the context of crowdfunding are still equivocal. Using a unique dynamic panel dataset from a leading reward-based crowdfunding platform, we develop a multi-level Bayesian model to examine the scarcity effect with controls for potential confounders as well as rewards’ nested unobserved heterogeneities. Moreover, we uncover the motivational mechanism that underlies backers’ investment behavior that gives rise to the observed effect. We find that backers are prevention-motivated on the crowdfunding platform. Scarcer rewards tend to attract more backers, and this positive effect is amplified by a larger number of existing backers, as obtaining demand-induced scarce products provides these risk-averse backers with a sense of security. This study offers valuable insight into the website and reward scheme design, providing useful implications for both platform managers and crowdfunding fundraisers.

Keywords: Crowdfunding, Scarcity Strategy, Behavioral Mechanism, Hierarchical Bayesian

Suggested Citation

Zhou, Zhijin and Ma, Chaoliang and Tan, Yong, Effects of Scarcity-Induced Demand on the Crowdfunding Market (January 27, 2019). Available at SSRN: https://ssrn.com/abstract=3323913 or http://dx.doi.org/10.2139/ssrn.3323913

Zhijin Zhou (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Chaoliang Ma

University of Science and Technology of China (USTC) ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China

Yong Tan

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3226
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
158
Abstract Views
1,132
rank
263,394
PlumX Metrics