Innovation Against Imitation: How to Compete with Crowdfunding Copycats?

48 Pages Posted: 27 Feb 2023 Last revised: 15 Mar 2024

See all articles by Zepeng Chen

Zepeng Chen

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Xiaomeng Guo

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Guang Xiao

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Fasheng Xu

University of Connecticut - Department of Operations & Information Management

Date Written: March 11, 2024

Abstract

Problem Definition: Successful crowdfunding campaigns usually attract opportunistic copycats in the retail market. To mitigate such imitation risk, startups may leverage on innovative product introduction strategy by providing a preliminary version in the crowdfunding stage, which withholds some product information. Alternatively, they may consider adopting the traditional bank financing without product information leakage. This paper investigates how a startup can compete with crowdfunding copycats via the aforementioned product and financing strategies. Methodology/Results: We build a game-theoretical model to investigate the strategic interactions between a startup and a copycat. Among other results, we highlight that the startup may intentionally withhold product quality offering to expel or weaken the potential crowdfunding copycat. However, the optimal crowdfunding quality provision is non-monotonic regarding copycat’s imitation efficiency and crowdfunding market share. We further study two financing strategies’ social impact and find that the socially optimal funding choice depends on the product strategy. Lastly, we find that, contrary to the commonly held view, enhanced efficiency of the copycat or increased financing accessibility of the startup does not always improve consumer surplus or social welfare. Managerial Implications: Despite the advantages associated with crowdfunding, startups contemplating this approach must be cognizant of the potential adverse impacts stemming from copycat imitation. Our results suggest that a startup seeking external financing may strategically employ the product introduction strategy to counteract crowdfunding copycats, which is generally less time-consuming and costly compared to alternative methods of intellectual property protection.

Keywords: Crowdfunding, bank financing, imitation, copycats, demand risk, new product introduction

Suggested Citation

Chen, Zepeng and Guo, Xiaomeng and Xiao, Guang and Xu, Fasheng, Innovation Against Imitation: How to Compete with Crowdfunding Copycats? (March 11, 2024). Available at SSRN: https://ssrn.com/abstract=4365788 or http://dx.doi.org/10.2139/ssrn.4365788

Zepeng Chen

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

HOME PAGE: http://zep-chen.github.io/

Xiaomeng Guo

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

Li Ka Shing Tower
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong

Guang Xiao

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

M634, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon
China

HOME PAGE: http://xiaog.weebly.com/

Fasheng Xu (Contact Author)

University of Connecticut - Department of Operations & Information Management ( email )

1 University Place
Stamford, CT 06901
United States

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