Timing the Provision of Product Information in Reward-Based Crowdfunding

34 Pages Posted: 31 Dec 2019

See all articles by Yinbo Feng

Yinbo Feng

Shanghai University of Finance and Economics - School of Information Management and Engineering

Jingwen Zhang

University of Washington

Date Written: December 10, 2019

Abstract

In a crowdfunding campaign, customers are often uncertain about how much they like the product launched because the product description often lacks detailed information, in which case the product value for a customer is her expected valuation. When that information is provided, customers' valuations are realized and become more heterogeneous. We study a dynamic model of reward-based crowdfunding in which customers' arrivals follow a Poisson process. Upon arrival, a customer's pledging decision depends on her valuation of the product, which is determined by the product information observed at that time, and the estimated success rate of the campaign, which is modeled by using the rational expectation equilibrium framework. The creator faces a problem of deciding when to disclose the detailed information about the product to the customers during campaign. We characterize the optimal timing of disclosing detailed information for the creator if his objective is to maximize the success rate of the campaign. We find that it is optimal to disclose detailed product information at the very beginning if the pledging cost is sufficiently high or the market size is sufficiently small, and it is optimal to delay the disclosure otherwise. We also show that increasing the customers heterogeneity at a right time can benefit the creator. This result makes our work different from traditional advance selling theory (Shugan and Xie (2000)) which states that advance selling can benefit a seller by homogenizing heterogeneous buyers.

Keywords: Optimal Stopping Time, Information Disclosure, Crowdfunding, Customer Heterogeneity

Suggested Citation

Feng, Yinbo and Zhang, Jingwen, Timing the Provision of Product Information in Reward-Based Crowdfunding (December 10, 2019). Available at SSRN: https://ssrn.com/abstract=3501609 or http://dx.doi.org/10.2139/ssrn.3501609

Yinbo Feng

Shanghai University of Finance and Economics - School of Information Management and Engineering ( email )

No. 100 Wudong Road
Shanghai, Shanghai 200433
China

Jingwen Zhang (Contact Author)

University of Washington ( email )

Box 353200
Seattle, WA 98195-3200
United States

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