Pricing and advertising for reward-based crowdfunding products in E-commerce

Abstract This paper studies a reward-based crowdfunding game wherein the creator first collects money through an E-crowdfunding platform and then, if successful, invests the raised money to fund promotional activities via online retailing. We derive the creator's equilibrium decisions and the corresponding payoff and show that they are significantly influenced by the potential demand and the gap between different types of buyer valuations. In particular, with the change in potential market size from low to high, the creator will choose investing none, part or all of the crowdfunded money to improve the advertising level. Meanwhile, when the market size is small, the creator tends to set a high price; when it becomes larger, the creator prefers menu prices or a low price to guarantee the success of the crowdfunding campaign. Comparing two scenarios, one with and one without considering advertising investment, creators may never choose the low price if they cannot raise enough money for advertising; however, that situation can never arise without considering the option of advertising investment. These results provide implications for launching a successful crowdfunding campaign and product promotion/advertising in this E-commerce era.