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Pricing and Quality Strategies in Crowdfunding with Network Externality

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  • Yang Xu

    (Anhui University of Finance and Economics)

  • Xu Wang

    (University of Science and Technology of China)

  • Qiang Zhou

    (University of Science and Technology of China)

Abstract

To improve the financing performance, optimization models have been developed to analyze the operation mechanism of crowdfunding. However, network externality, which has proven to exist in crowdfunding, was ignored in previous studies. In order to address this gap, we construct an optimization model incorporating network externality and investigate its impact on crowdfunding operation decisions. Our analysis reveals that network externality does not monotonously influence optimal prices, while it always improves the project quality. In addition, we prove that although network externality increases the creator’s profit, it increases the price discrimination level and may hurt consumers, thus reducing social welfare. In extensions, we investigate the effects of demand uncertainty, external financing, and word-of-mouth effect on the optimal decisions. Our work not only provides managerial implications for crowdfunding activities, but also reveals the potential negative effects of network externality for platforms.

Suggested Citation

  • Yang Xu & Xu Wang & Qiang Zhou, 2023. "Pricing and Quality Strategies in Crowdfunding with Network Externality," Journal of Optimization Theory and Applications, Springer, vol. 196(1), pages 98-125, January.
    • Handle: RePEc:spr:joptap:v:196:y:2023:i:1:d:10.1007_s10957-022-02117-9
    DOI: 10.1007/s10957-022-02117-9
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    References listed on IDEAS

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