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Revenue Management in Crowdfunding

Problem definition: We study the optimal design of crowdfunding campaigns and develop a model that maximizes revenue for a given crowdfunding campaign by optimizing both the pledge level sought from donors and the duration of the campaign. Academic/practical relevance: Our model explains the patterns of backer/donor arrival and pledging observed on crowdfunding platforms, such as Kickstarter. This model can be used to calibrate the revenue impact from using prespecified pledge levels or campaign durations. Methodology: We develop a theoretical model of the dynamics of the pledging process within the campaign duration, which employs a continuous-time, finite-horizon framework with two types of backer populations. Our model follows a diffusion-based approach and incorporates the structure of empirical observations. Results: We show that when campaign creators must follow an external standard for either the pledge level or the campaign duration, they should match low pledge levels with long campaign durations and high pledge levels with short campaign durations. We show that the optimal duration of a campaign, when not fixed by external constraints, depends on the composition of the backer population. Shorter campaigns are attuned to independent backers, and longer campaigns cater to herding backers. Managerial implications: Our analysis provides creators of crowdfunding campaigns with straightforward prescriptions for how to set the optimal pledge level and campaign duration. Platform managers could use the analysis to calibrate the arrival process of backers and creators’ campaign parameters.