Limitless crowdfunding? The effect of scarcity management

Abstract

Crowdfunding is a process by which enterprises or individuals seek to secure project funding by soliciting pledges from potential donors, usually via an Internet platform. These platforms offer project initiators the ability to limit the number of times a certain reward is claimed by supporters. This can be used to either offer a reward, which is naturally limited, or to induce an artificial scarcity for rewards without a natural limitation. The induction of such artificial limitations represents a signal which may, fundamentally, either have a positive or a negative effect on the crowdfunding project. To answer this question, this paper not only discusses the theoretical effects of scarcity management in the crowdfunding context, but also investigates this empirically. The analysis of 42,996 projects from Indiegogo.com indicates that current scarcity management is problematic at best and reduces the chances of projects to successfully achieve their target funding.