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Crowdfunding in a Competitive Environment

Department of Finance, Accountancy and Economics, Birmingham City University, Birmingham B4 7XG, UK
This paper initially circulated as “Crowdfunding in a Duopoly Under Asymmetric Information”. I would like to thank professor Douglas Cumming for his encouragement. Also many thanks to Giacomo Corneo, Julie Ann Elston, Kai Hueschelrath, William E. Jackson III, Xiehua (Richard) Ji, Victor Miglo, Juuso Valimaki, two anonymous referees and the seminar participants at University of Brighton, de Montfort University, University of Greenwich, University of Westminster, London South Bank University, the Royal Economic Society annual meeting of 2018 and the British Accounting and Finance Association annual meeting of 2018 for the useful comments and editing assistance.
J. Risk Financial Manag. 2020, 13(3), 39; https://doi.org/10.3390/jrfm13030039
Received: 14 December 2019 / Revised: 9 February 2020 / Accepted: 20 February 2020 / Published: 25 February 2020
(This article belongs to the Special Issue Crowdfunding)
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 e.g., (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. View Full-Text
Keywords: asymmetric information; crowdfunding and competition; reward-based crowdfunding; signalling; strategic entrepreneurship asymmetric information; crowdfunding and competition; reward-based crowdfunding; signalling; strategic entrepreneurship
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Miglo, A. Crowdfunding in a Competitive Environment. J. Risk Financial Manag. 2020, 13, 39.

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