Paul Belleflamme

Crowdfunding: Tapping the Right Crowd

Article history: Received 25 September 2012 Received in revised form 10 July 2013 Accepted 10 July 2013 Available online xxxx Field Editor: G. Cassar With crowdfunding, an entrepreneur raises external financing from a large audience (the “crowd”), in which each individual provides a very small amount, instead of soliciting a small group of sophisticated investors. This article compares two forms of crowdfunding: entrepreneurs solicit individuals either to pre-order the product or to advance a fixed amount of money in exchange for a share of future profits (or equity). In either case, we assume that “crowdfunders” enjoy “community benefits” that increase their utility. Using a unified model, we show that the entrepreneur prefers pre-ordering if the initial capital requirement is relatively small compared with market size and prefers profit sharing otherwise. Our conclusions have implications for managerial decisions in the early development stage of firms, when the entrepreneur needs to build a community of individuals with whom he or she must interact. We also offer extensions on the impact of quality uncertainty and information asymmetry.

Market Sharing Agreements and Collusive Networks

We analyze reciprocal market sharing agreements by which firms commit not to enter each others territory in oligopolistic markets and procurement auctions. The set of market sharing agreements defines a collusive network. We characterize stable collusive networks when firms and markets are symmetric. Stable networks are formed of complete alliances, of different sizes, larger than a minimal threshold. Typically, stable networks display fewer agreements than the optimal network for the industry and more agreements than the socially optimal network. When firms or markets are asymmetric, stable networks may involve incomplete alliances and be underconnected with respect to the social optimum.

The Economics of Crowdfunding Platforms

This paper provides a description of the crowdfunding sector, considering investment- based crowdfunding platforms as well as platforms in which funders do not obtain monetary payments. It lays out key features of this quickly developing sector and explores the economic forces at play that can explain the design of these platforms. In particular, it elaborates on cross-group and within-group external effects and asymmetric information on crowdfunding platforms.

Yardstick competition and political agency problems

This paper analyzes the role of yardstick competition for improving political decisions. We examine how performance comparisons across jurisdictions affect the agency problem resulting from uncertainty about politicians (adverse selection) and their policies (moral hazard). We study two forms of inefficiency: the provision of wasteful project and the failure to provide useful project .We find a general neutrality result: yardstick competition does not affect the likelihood of fully efficient equilibria for any correlation (with a discontinuity at perfect correlation). We also find that yardstick competition has no effect on the likelihood of inefficient equilibria in which politicians refrain from implementing valuable projects. However, performance comparisons makes it less likely to have an equilibrium where bad politicians in both jurisdictions use wasteful projects as inefficient transfer forms.

Negative Intra-Group Externalities in Two-Sided Markets

Two types of agents interact on a pre-existing free platform. Agents value positively the presence of agents of the other type but may value negatively the presence of agents of their own type. We ask whether a new platform can find fees and subsidies so as to divert agents from the existing platform and make a profit. We show that this might be impossible if intra-group negative externalities are sufficiently (but not too) strong with respect to positive inter-group externalities.

Pricing Information Goods in the Presence of Copying

The effects of (private, small-scale) copying on the pricing behavior of producers of information goods are studied within a unified model a la Mussa-Rosen (1978). When the copying technology involves a marginal cost and no fixed cost, producers act independently. In this simple framework, we highlight the trade-off between ex ante and ex post efficiency considerations (how to provide the right incentives to create whilst limiting monopoly distortions?). When the copying technology involves a fixed cost and no marginal cost, pricing decisions are interdependent. We investigate the strategic pricing game by focussing on some significant symmetric Nash equilibria.

Stable Coalition Structures with Open Membership and Asymmetric Firms

I study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the market. According to previous analyses, only the grand coalition forms at the Nash equilibrium of such games. I show that this result hinges on the assumption of symmetric firms. I therefore introduce asymmetric firms in a game where only two associations can form. I demonstrate that there exists a coalition-proof Nash equilibrium coalition structure in this game, and that when the equilibrium involves two associations, all the members of an association have a higher taste for this association than all nonmembers do. Journal of Economic Literature Classification Numbers: C70, C72, L13.

Piracy and competition

The effects of (private, small-scale) piracy on the pricing behavior of producers of information goods are studied within a unified model of vertical differentiation. Although information goods are assumed to be perfectly differentiated, demands are interdependent because the copying technology exhibits increasing returns to scale. We characterize the Bertrand-Nash equilibria in a duopoly. Comparing equilibrium prices to the prices set by a multiproduct monopolist, we show that competition drives prices up and may lead to price dispersion. Competition reduces total surplus in the short run but provides higher incentives to create in the long run.

Oligopolistic competition, IT use for product differentiation and the productivity paradox

Abstract Empirical studies suggest that the huge investment in information technologies (IT) of the past two decades has led to no significant increase in productivity; this phenomenon is known as the ‘productivity paradox’. It has been argued that the paradox might result from oligopolistic competition: because of strategic interaction, each individual firm might find it profitable to invest in cost-reducing IT, but total investment might then be excessive from the industry’s point of view. I confirm this view and strengthen it by allowing IT investment to be also devoted to product differentiation which makes the productivity paradox more likely. The emergence of Web-based electronic commerce provides an illustration of the forces identified in the model.

Coordination on formal vs. de facto standards: a dynamic approach

Formal standards arise out of deliberations of standards-writing organizations, while de facto standards result from unfettered market processes. Therefore, the former are of a higher quality and legitimacy, but are slower to develop than the latter. To address this trade-off, we analyze a dynamic game where two players choose between one evolving formal standard and one mature de facto standard. The outcome of the game relies on the coordination mechanism used by the players, one the relative value they attach to successful coordination, and on the formal standards performance at the end of the game.