Crowdfunding Project Design: Optimal Product Menu and Funding Target

Abstract

We study, using a stylized analytical model, an entrepreneur's design of the optimal product menu for crowdfunding together with the optimal choice of the funding target. We find that in contrast to prior literature on crowdfunding, downward quality distortion of the low‐quality product in the entrepreneur's product menu under crowdfunding can be higher, lesser or even non‐existent than that under traditional selling. We also show that crowdfunding as an alternative to traditional selling is only attractive in the presence of a non‐zero fixed cost. Our findings provide important implications for entrepreneurs in optimizing their crowdfunding project design.