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Product-driven Entrepreneurs and Crowdfunding

By Lin Hu, Zhenhua Wu and Bin Gu


Advancements in information technology is known for enabling new business models and newmarket mechanisms. Online crowdfunding is one such new mechanism through which entrepreneurscan advertise their potential products and attract investors from the mass. In this study, we advancethe existing theory on online crowdfunding markets by recognizing that online crowdfunding pro-vides not only a venue of fundraising to entrepreneurs but also a venue for them to obtain demand in-formation before production and to signal their intention. We formulate a spatial competition modelbetween profit-driven entrepreneurs and product-driven entrepreneurs. We find that, while, on aver-age, profit-driven entrepreneurs earn higher profits than product-driven ones, their advantage is con-strained by the mechanism of the crowdfunding campaign, and product-driven entrepreneurs earn asignificant fraction of the market. We also discuss model implications on consumer satisfaction andcrowdfunding platform design

Topics: Crowdfunding; Entrepreneurs; Spatial Competition; Signaling
Publisher: AIS Electronic Library (AISeL)
Year: 2019
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