Pricing strategy and campaign design in flight crowdfunding: A creative way to sell flight tickets

Abstract

AbstractThis paper analyzes a novel selling strategy for airlines, termed flight crowdfunding, whereby an airline, as a creator, launches flights to solicit funds from the crowd. Under this strategy, the project succeeds if the total amount pledged reaches a predetermined threshold by the end of the campaign; otherwise, the flight will be canceled. We provide an implementable model to describe the process of flight crowdfunding and explain the behavior of strategic consumers. First, we find that crowdfunding is strictly optimal for airlines in a competitive market, although perhaps not in a monopoly market. Crowdfunding benefits airlines by reducing their expected cost and introducing a new type of buyer uncertainty, that is, uncertainty in the projects' success probability. Second, we show that the optimal threshold is lower than the indifferent point. Third, a counterintuitive finding is that crowdfunding may increase the equilibrium price in a monopoly market. Our research underscores the importance of crowdfunding and shows that crowdfunding may be even more attractive than what was previously thought. Crowdfunding can also improve airlines' profits as a revenue management strategy and benefit social welfare by reducing greenhouse gas emissions.