Effects of Scarcity-Induced Demand on the Crowdfunding Market
41 Pages Posted: 8 Feb 2019 Last revised: 3 Dec 2019
Date Written: January 27, 2019
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
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