Information Aggregation in Large Collective Purchases

Abstract

We study a monopolist that uses the following scheme to gauge market traction for its common-value, excludible product. The monopolist offers its product at a given price, and each potential consumer decides whether to buy it. The contributions are collected. The product is supplied only if the total demand exceeds some threshold set by the monopolist, as is common in crowdfunding platforms and collective-buying sites. We study how well such collective purchase scenarios perform from: (1) the monopolist's perspective, in terms of market penetration, and (2) from the society's perspective, in terms of efficiency and social welfare.