Essays on the dynamics of crowdfunding

Abstract

Crowdfunding platform democratizes the process to get financial capital, which enables nearly everyone to propose a novel idea, publish it, and then to see whether others are willing to provide capital to fund it. The cost to realize a novel project and launch new ventures becomes increasingly lower. However, existing studies mainly discuss single factors influencing single crowdfunding outcome, this thesis aims to add more empirical evidence concerning how reward design, listing requirements, and communications on the platform can shape the multifaceted crowdfunding outcomes.

The thesis consists of two essays on the dynamics of crowdfunding from various aspects. The first essay investigates the marketing strategy flash sale in the context of crowdfunding. In detail, project creators set rewards with price discount in a short time period. While past research has investigated some factors influencing the crowdfunding outcomes, the angle treating backer as bounded-rationality individuals receives scarce attention. Based on the literature of anchoring effect and psychological reactance, this paper aims to fill the gap by shedding light on the impact of rewards with price discount and time limit on crowdfunding outcomes as well as their joint influences. In detail, this study collects the information of nearly 500,000 projects from the largest reward-based crowdfunding platform, Kickstarter, and reveals that price discount can attract potential backers through anchoring effect while discourage them if there are too many rewards with price discount. Thus, at project level, we find that the percentage of rewards with price discount has an inverted U-shaped relationship with crowdfunding outcomes and adopting time limit in reward setting have overall positive impact on crowdfunding outcomes. Further exploration of how time limit influences the degree to which potential backers are influenced by anchoring effect indicates that time limit constraints individuals’ capability to process information, so that psychological bias such as anchoring effect can play a bigger role in the decision make process. This paper emphasizes the importance of utilizing multiple marketing strategies in crowdfunding context and introduces important practical guidance for platform owners, project creators and potential backers. The second essay focuses on the listing requirements on the crowdfunding platform and the communication between project creators and backers. We find that both relaxing listing requirements and increase communication between project creators and backers can improve backer satisfaction. Besides, the impact of relaxing listing requirements on backer satisfaction is stronger when the amount of communication between project creators and backers is larger.

In sum, the two essays jointly supplement the strand of literature on the crowdfunding outcomes. They provide both theoretical implications and practical implications concerning how to design a crowdfunding platform or a project on the platform more effectively through regulation rules on the platform and specific reward design.