Joint price and quality optimization strategy in crowdfunding campaign

Abstract

This paper considers a scenario where a creator uses crowdfunding to raise funds, and after successfully implementing the project, he will further sell products in spot market. We jointly optimize price and product quality to maximize the long-term benefits of the creator. Our analysis first reveals that, beyond the financing advantage, the creator can also obtain premium in crowdfunding through price discrimination, which explains why prices of many products on Kickstarter are reduced in spot market. Second, we find over-investment happens because higher product quality can increase price discrimination level, which is affected by the capital constraint level and product attributes. Our analysis also suggests that crowdfunding increases total consumer surplus, yet this outcome results from two competing effects–the positive effect of larger market coverage and the negative effect of price discrimination. Moreover, we reveal the difference in change direction between individual consumer surplus and total consumer surplus. In extensions, we investigate how the creator can respond to consumers’ strategic waiting behavior and moral hazard. We further study how the price commitment and deferred payment mechanism can improve crowdfunding performance regarding consumers’ strategic behavior and moral hazard, respectively.