Decision strategies in reward-based crowdfunding: the role of crowdfunding platforms

Abstract

Purpose

The purpose of this paper is to investigate the influence of the crowdfunding platforms on reward-based crowdfunding projects. This study offers guidance for the creator on how to choose among platforms and how to make optimal product and pricing decisions.

Design/methodology/approach

Usually, crowdfunding platforms are able to help creators to lower unit costs and charge platform fees in return. In this paper, the reduction of the unit cost and the platform fee are selected for determining the competitive strength (CS) of a platform. Then, the CS affecting the creators and the backers of the projects is analyzed.

Findings

In the basic model, when the product quality level is exogenous, the optimal price increases in the product quality level and decreases in the difficulty level of the project, while the corresponding expected profit is a unimodal function of the product quality level and the difficulty level. In the endogenous case, the optimal price is exactly twice the unit cost. With the influence of platforms, platforms with higher CS tend to help the creator to lower the prices and to achieve higher profitability. Moreover, platforms with higher CS usually help the creator to offer higher quality products and to charge higher prices.

Research limitations/implications

The opportunity cost is zero in this paper. In reality, backers arrive at the project in different order. Usually, earlier backers bare more opportunity cost and risk.

Originality/value

To the best of authors’ knowledge, this paper is the first one to offer suggestions for creators on how to choose among crowdfunding platforms. The study provides theoretical guidance on product and pricing decisions on an analytical side.

Citation

Bi, G., Xiang, Q., Geng, B. and Xia, Q. (2019), "Decision strategies in reward-based crowdfunding: the role of crowdfunding platforms", Journal of Modelling in Management, Vol. 14 No. 3, pp. 569-589. https://doi.org/10.1108/JM2-10-2018-0179