Crowdfunding with Strategic Pricing and Information Disclosure

Abstract

The crowdfunding industry is expected to reach a volume of $90 billion per year. In crowdfunding, a creator needs to decide not only the pricing but also when and how frequent to disclose the campaign progress to the contributors, in order to maximize the project revenue. In this paper, we present a first analytical study on how the creator's pricing and information disclosure strategies affect the potential contributors' belief update process, hence the project success and creator's expected revenue. Specifically, we consider a multi-stage crowdfunding model, where a stage corresponds to the period between the creator's two information disclosures. At the beginning of the campaign, a creator announces her pricing decision and information disclosure strategy for revenue maximization. Then contributors coming in each following stage will choose whether to contribute, based on not only the disclosed pledging status so far but also the estimation of the impact of their decisions on later contributors. Such a model is challenging to optimize because of the coupling across multiple stages, especially with contributors' anticipations of future stages. Nevertheless, we are able to characterize the contributors' threshold-based equilibrium pledging decisions, and we incorporate such a structural result into the creator's mixed-integer revenue maximization problem. Through both analytical and numerical studies, we show that the contributors' prior belief of high-valuation contributor percentage plays a critical role in the creator's optimal strategic information disclosure decisions. When the contributors have a high prior belief, a creator should not announce the pledging history until all the contributors have made their pledging decisions. When the prior belief is low, the creator should disclose more often.