TY - JOUR
T1 - Crowdfunding Adoption in the Presence of Word-of-Mouth Communication
AU - Xu, Fasheng
AU - Guo, Xiaomeng
AU - Xiao, Guang
AU - Zhang, Fuqiang
N1 - Publisher Copyright:
© 2022 F. Xu et al.
PY - 2022/7/4
Y1 - 2022/7/4
N2 - In the fast growing markets of crowdfunding, firms launch projects not only to raise funding directly from the crowd to cover early stage investment, but also to expand product awareness via word-of-mouth (WoM) communication. In this monograph, we investigate a firm’s optimal funding choice when launching an innovative product in the market with WoM communication. We characterize the firm’s optimal quality and pricing strategies under both crowdfunding and traditional bank financing, and compare these two funding choices and their corresponding welfare implications. Among other results, we show that crowdfunding is a preferable funding choice for a project when (its success probability is below an adoption threshold). More active WoM communication always benefits the firm and favors crowdfunding adoption. However, product quality may either increase or decrease as WoM expands. Consumer surplus and social welfare always increase as WoM communication becomes more active.
AB - In the fast growing markets of crowdfunding, firms launch projects not only to raise funding directly from the crowd to cover early stage investment, but also to expand product awareness via word-of-mouth (WoM) communication. In this monograph, we investigate a firm’s optimal funding choice when launching an innovative product in the market with WoM communication. We characterize the firm’s optimal quality and pricing strategies under both crowdfunding and traditional bank financing, and compare these two funding choices and their corresponding welfare implications. Among other results, we show that crowdfunding is a preferable funding choice for a project when (its success probability is below an adoption threshold). More active WoM communication always benefits the firm and favors crowdfunding adoption. However, product quality may either increase or decrease as WoM expands. Consumer surplus and social welfare always increase as WoM communication becomes more active.
UR - http://www.scopus.com/inward/record.url?scp=85134881200&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85134881200&partnerID=8YFLogxK
U2 - 10.1561/0200000102-2
DO - 10.1561/0200000102-2
M3 - Article
AN - SCOPUS:85134881200
SN - 1571-9545
VL - 15
SP - 247
EP - 265
JO - Foundations and Trends in Technology, Information and Operations Management
JF - Foundations and Trends in Technology, Information and Operations Management
IS - 3
ER -