Pricing of crowdfunding products with strategic consumers and online reviews

Abstract

Entrepreneurs can adopt a two-stage sale to sell the product once the crowdfunding campaign succeeds. With All-or-Nothing mechanism, we investigate the effect of online reviews on strategic consumer behavior and the choice of pricing strategy by considering two cases—one without and the other with online reviews. Analytical results show that online reviews play a significant role in determining the pricing strategy and maximizing profits. In the absence of online reviews, regardless of the funding goal, the penetration and uniform pricing strategies always benefits entrepreneurs. However, in the presence of online reviews, the funding goal influences the optimal pricing strategy. In particular, when the funding goal is low, the penetration pricing strategy is preferred; while the skimming pricing strategy may be adopted under certain conditions. By analyzing the model extension, we find that the presence of regret cost is beneficial to the entrepreneur’s profit under most circumstances.