Signaling Production Quality for Reward-based Crowdfunding under Competition

63 Pages Posted: 12 Feb 2021

See all articles by Feiyang Shen

Feiyang Shen

Southeast University

Xu Xiaolin

Nanjing University - School of Business

Weili Xue

Southeast University - School of Economics and Management

Xiaoqiang Cai

The Chinese University of Hong Kong, Shenzhen

Date Written: August 31, 2020

Abstract

We provide a dynamic, game-theoretic model in which a creator (she) determines whether to signal her private product quality information by reward price in crowdfunding, when facing a potential imitator (he). The imitator will imitate the product with a quality decision after observing the creator's reward price and engages in a price competition with her in the regular market.
The imitator's product has a market acceptance level, which reflects that fact that it can not perfectly bring out the same utility to consumers as the innovative product.
We find that the introduction of an imitator may help the creator signal her quality.
Moreover, when the acceptance level is low, the imitator may choose the same quality as the creator and the low-quality creator may be the one to resolve quality information uncertainty; and when the acceptance level is high, he may choose a different quality level and the high-quality creator may set a even lower price than the low-quality creator to achieve separation. We also show that, after incorporating the imitator's strategic behavior,
the high-quality creator could benefit from concealing her product quality information by misleading the imitator to choose a less competitive product; while the low-quality creator may prefer disclosing her product quality information to reduce the competitive intensity. Our main results remain robust under alternative model settings, e.g., endogenous target goal, various introduction timing of the imitator's product, allowing non-pledging backers buying in regular market.

Keywords: reward-based crowdfunding, asymmetry information, competition, signaling

Suggested Citation

Shen, Feiyang and Xiaolin, Xu and Xue, Weili and Cai, Xiaoqiang, Signaling Production Quality for Reward-based Crowdfunding under Competition (August 31, 2020). Available at SSRN: https://ssrn.com/abstract=3683574 or http://dx.doi.org/10.2139/ssrn.3683574

Feiyang Shen

Southeast University ( email )

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Xu Xiaolin

Nanjing University - School of Business ( email )

22 Hankou Road
Nanjing, Jiangsu 210093 210093
China

Weili Xue (Contact Author)

Southeast University - School of Economics and Management ( email )

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Xiaoqiang Cai

The Chinese University of Hong Kong, Shenzhen

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