Crowdfunding and Demand Uncertainty

39 Pages Posted: 3 Jun 2020

See all articles by Christoph Scheuch

Christoph Scheuch

wikifolio Financial Technologies AG

Date Written: April 14, 2020

Abstract

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 characterize the profit-maximizing crowdfunding mechanism when 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 in the number of pledgers, which grants consumers with high reservation prices information rents. However, if these information rents are large, then the entrepreneur prefers fixed high prices that lead to under-investment.

Keywords: Asymmetric Information, Mechanism Design, Robust Implementation

JEL Classification: D82, G32, L11

Suggested Citation

Scheuch, Christoph, Crowdfunding and Demand Uncertainty (April 14, 2020). Available at SSRN: https://ssrn.com/abstract=3578402 or http://dx.doi.org/10.2139/ssrn.3578402

Christoph Scheuch (Contact Author)

wikifolio Financial Technologies AG ( email )

Berggasse 31
Vienna, 1090
Austria

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