Crowdfunding in a Competitive Environment

Miglo, Anton (2020) Crowdfunding in a Competitive Environment. Journal of Risk and Financial Management, 13 (3). p. 39. ISSN 1911-8074

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Abstract

Crowdfunding has mostly been used to finance very unique projects. Recently, however, companies have begun using it to finance more traditional products where they compete against other sellers of similar products. Major crowdfunding platforms, Kickstarter and Indiegogo, as well as Amazon have launched several projects consistent with this trend. This paper offers a model where two competing firms can use crowdfunding prior to direct sales. The model provides several implications that have not yet been tested eg.: 1) Firms can use crowdfunding strategically to signal a high level of demand for their products; 2) (reward-based) Crowdfunding is procyclical; 3) A higher platform fee may lead to higher firm profits in equilibrium; 4) Competition increases the chances of using crowdfunding compared to the monopoly case; 5) A non-monotonic relationship exists between the risk of crowdfunding campaign failure and firm profit.

Item Type: Article
Identification Number: https://doi.org/10.3390/jrfm13030039
Date: 25 February 2020
Uncontrolled Keywords: asymmetric information, crowdfunding and competition, reward-based crowdfunding, signalling, strategic entrepreneurship
Subjects: L100 Economics
N100 Business studies
N200 Management studies
N300 Finance
Divisions: Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Depositing User: Anton Miglo
Date Deposited: 03 Mar 2020 11:47
Last Modified: 03 Mar 2020 11:47
URI: http://www.open-access.bcu.ac.uk/id/eprint/8963

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