Abstract:

As a new online financing method， crowdfunding provides a new scheme for SMEs to raise funds. One of the branches of crowdfunding， namely reward-based crowdfunding， can not only serve as a channel for entrepreneurs to raise funds， but also predict the future demand of products. According to the practices and academic research on reward-based crowdfunding， how to attract more investors， improve the success rate of crowdfunding projects and get more profits are the issues that entrepreneurs need to focus on. Among these issues， the product quality is the most important factor that will determine the result of crowdfunding projects. In practice， entrepreneurs have different ways to illustrate the product quality， such as presenting a video on the website or show more figures about the product. However， now there is no research on the quality disclosure strategies for entrepreneurs in reward-based crowdfunding while considering the pricing decisions under different crowdfunding mechanisms. To answer the question， the quality disclosure and pricing decisions of the entrepreneur under the reward-based crowdfunding are investigated based on the All-Or-Nothing （AON） mechanism and Keep-It-All （KIA） mechanism， respectively. By establishing an analytical model with one entrepreneur and two potential investors， the optimal decisions of the entrepreneur are presented. Further， numerical experiments are conducted to investigate the influence of important parameters， while the results under the two mechanisms are compared. The conclusions of this paper are as follows： When the disclosure cost is low， the entrepreneur has two options to disclose quality information or not to disclose the quality information； while when the disclosure cost is high， the entrepreneur will certainly not disclose the quality information. In addition， if the unit cost of the product is high， the entrepreneur will choose to disclose the quality information. When the cost of the product and the cost of disclosure are relatively large， the entrepreneur will not create crowdfunding projects. In terms of entrepreneur’s profits， the increase of real product quality and valuation discount coefficient will not make entrepreneur’s profits worse. When the valuation discount coefficient or the real quality of the product is low， the entrepreneur can obtain higher profits under the AON mechanism. On the contrary， for the entrepreneur of crowdfunding campaigns with high real product quality and high valuation discount coefficient， he should choose the KIA mechanism. The conclusions of this paper will provide advice for entrepreneurs to choose the better crowdfunding mechanism and help them decide whether to disclose the product quality， which can improve the success rate of crowdfunding project and increase the expected profits from crowdfunding.

Key words: reward-based crowdfunding, quality disclosure, AON mechanism, KIA mechanism