Crowdfunding and Demand Uncertainty
40 Pages Posted: 3 Jun 2020 Last revised: 24 Sep 2023
Date Written: September 23, 2023
Reward-based crowdfunding allows entrepreneurs to sell claims on future products to finance investments and, at the same time, to generate demand information that benefits screening for viable projects. I provide a characterization of the profit-maximizing crowdfunding mechanism in a setting where the entrepreneur knows neither the number of consumers who positively value the product nor their reservation prices. The entrepreneur can finance all viable projects by committing to prices that decrease as the number of pledgers increases. This pricing strategy grants information rents to consumers with high reservation prices. However, if these information rents are large, then the entrepreneur prefers fixed high prices that lead to underinvestment.
Keywords: Asymmetric Information, Mechanism Design, Robust Implementation
JEL Classification: D82, G32, L11
Suggested Citation: Suggested Citation