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Crowdfunding: tapping the right crowd

Author

Listed:
  • BELLEFLAMME, Paul

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • LAMBERT, Thomas

    (Université catholique de Louvain, Louvain School of Management, B-1348 Louvain-la-Neuve, Belgium)

  • SCHWIENBACHER, Armin

    (Université Lille Nord de France, SKEMA Business School, F-59020 Lille Cedex, France)

Abstract
The basic idea of crowdfunding is to raise external finance from a large audience (the “crowd”), where each individual provides a very small amount, instead of soliciting a small group of sophisticated investors. The paper develops a model that associates crowdfunding with pre-ordering and price discrimination, and studies the conditions under which crowdfunding is preferred to traditional forms of external funding. Compared to traditional funding, crowdfunding has the advantage of offering an enhanced experience to some consumers and, thereby, of allowing the entrepreneur to practice menu pricing and extract a larger share of the consumer surplus; the disadvantage is that the entrepreneur is constrained in his/her choice of prices by the amount of capital that he/she needs to raise: the larger this amount, the more prices have to be twisted so as to attract a large number of “crowdfunders” who pre-order, and the less profitable the menu pricing scheme.

Suggested Citation

  • BELLEFLAMME, Paul & LAMBERT, Thomas & SCHWIENBACHER, Armin, 2011. "Crowdfunding: tapping the right crowd," LIDAM Discussion Papers CORE 2011032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2011032
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2011.html
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    References listed on IDEAS

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    More about this item

    Keywords

    crowdfunding; pre-ordering; menu pricing;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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