Pricing and observational learning in crowdfunding: The moderate effect of target

Abstract

This paper studies pricing and observational learning in a reward-based crowdfunding campaign context. The creator sets a funding target and uses different pricing strategies in order to make the project successful: menu price and other static or dynamic price strategies, such as low price, high price, and intertemporal price. In a sequential game, the creator needs to choose the optimal pricing strategy with or without information disclosure. With information disclosure, the follower can infer the quality of the product by observing the former’s decision. We found that this observational learning effect is a double-edged sword and is positively moderated by the target when different pricing strategies are adopted: on one hand, it will benefit the creator from an intertemporal pricing strategy or high price strategy if the target is very high; on the other hand, it has an adverse effect on the profit if menu price (high price) is adopted when the target is relatively (very) low. In some conditions, menu price (high price) without information disclosure will be optimal when the target is relatively (very) low.