A distinctive early bird price in reward-based crowdfunding

Abstract

Many crowdfunding platforms allow creators maximum flexibility in terms of the prices and rewards offered in a project to gain sufficient capital. Early bird prices, with the original purpose of attracting more early consumers by providing a discounted price for the same product sold in traditional e-commerce retail, are widely used in crowdfunding worldwide and unexpectedly result in “overpay” behaviour. This research aims to explore whether and how creators can use this “overpay” behaviour through dynamic theory with incomplete information, verifying our point of view through empirical analysis. The results show that providing multiple prices for same product generally increases funding performance because backers will balance the surplus and the success rate of their payment decisions to maximize their expected surplus; however, when projects face the low heterogeneity of backer groups, providing a uniform price may be an optimal pricing decision. These findings have direct implications for launching crowdfunding projects that will be more effective in funding more capital by offering reasonable prices.