Reward-Based Crowdfunding to Strategic Consumers With Creator’s Own Assets and the Spot Sales

Reward-based crowdfunding helps creators with constrained assets obtain financing from potential consumers. However, an all-or-nothing mechanism for crowdfunding may hurt creators because possible buying frenzies in crowdfunding caused by strategic consumers will cannibalize the demand for spot sales if the project meets its goal before the deadline. We employ a three-period model consisting of a risky period of crowdfunding, a risk-free period of crowdfunding, and a spot sales period after crowdfunding. Our results reveal that a strategic consumer's optimal purchase decision depends on the consumer's anticipated success probability and the probability of liking the product. Moreover, contrary to the intuition that buying frenzies will hurt the creators' revenue by cannibalizing spot sales demand, our results show that creators benefit from buying frenzies because such buying results in better market segmentation. In addition, when their assets are moderate, crowdfunding should be used. For spot sales, the intuition that creators should choose an ample capacity strategy to meet all the market demand (i.e., no lost sales) is correct only when their assets exceed a threshold. Otherwise, interestingly, they will have to choose an insufficient capacity strategy because the creator cannot meet the expected demand in spot sales even through crowdfunding.