Pricing for reward-based crowdfunding products under double moral hazard

After achieving success in reward-based crowdfunding campaigns, many entrepreneurs seek venture capital (VC) funding and retail market entry, conditional on project success (i.e. successful product development and mass production). However, in collaboration with VC investors, crowdfunding pledges can erode retail market revenues by influencing project outcomes due to a double moral hazard problem. Crowdfunding pricing thus becomes a critical mechanism to balance these two payoffs. In this study, we develop a multi-stage game model to address the moral hazard issue between entrepreneurs and VC investors. We derive effort equilibria, revenue-sharing outcomes, and optimal crowdfunding pricing decisions. We also examine VC investor selection criteria and the impact of technology advantage on entrepreneurial profits. Our theoretical findings identify four distinct pricing zones based on VC investor efficiency and the entrepreneur’s technology advantage. The relationship between pricing and technology advantage is shown to depend on VC efficiency. Regarding investor selection, we find that technology advantage is pivotal at low and moderate efficiency levels but becomes irrelevant when efficiency is high. Interestingly, we show that while a substantial technology advantage may harm entrepreneurial profits, it is more likely to benefit entrepreneurs when working with less-efficient investors. Finally, numerical experiments are conducted to validate the theoretical insights, offering practical implications for managing crowdfunding campaigns and VC partnerships.