Equal Opportunity for All? The Long Tail of Crowdfunding: Evidence From Kickstarter

Abstract

Crowdfunding platforms are believed to create a more equal-opportunity environment for fundraising by removing entrance barriers found in traditional financial markets. Our work draws from the literature on the “long tail” to investigate whether in creating more equal opportunities for entering the market, crowdfunding platforms also create a more equal distribution of funds. We utilize a natural experiment in the form of a policy change on Kickstarter.com that resulted in opening the market to more players, effectively creating a more equal-opportunity environment. We examine how platform-openness affected the distribution of funds and backers across campaigns. Specifically, we ask whether removal of entrance barriers — which increased the quantity and variety of offers — shifted demand from popular to niche offers (a long-tail effect). To address this question, we use campaign-level analysis as well as backer-level analysis. Counterintuitively, our findings indicate that opening the platform shifted demand towards the head: More funds and backers became concentrated in a smaller number of head-offers. We conclude that efforts to level the playing field in crowdfunding platforms can ultimately result in a less-equitable distribution of funds across the marketplace (a superstar effect).