Timing the Provision of Product Information in Reward-Based Crowdfunding

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