Effects of Scarcity-Induced Demand on Crowdfunding Market

Fundraisers on reward-based crowdfunding platforms have increasingly sought to base their promotional strategy on the principle of scarcity. Although previous studies find that using a limited-edition inventory contributes to the success of campaigns, it remains unknown how fundraisers should leverage a scarcity strategy in the upfront design of reward options. Using a unique dynamic panel dataset from a leading reward-based crowdfunding platform, we develop a hierarchical Bayesian model to capture the dynamic arrival process of backers at the reward option level. We find that backers are driven by excess demand rather than limited supply. Putting quantity restrictions on a reward option can discourage demand if it fails to accumulate an adequate number of backers first. In addition, the scarcity strategy is more effective in high-priced reward options than in low-priced reward options. This study offers practical implications for the implementation of a scarcity strategy for both platform managers and fundraisers.