Topics in industrial organization and crowdfunding

This dissertation comprises three papers focusing on key topics in industrial organization and crowdfunding theory: firms’ organizational structure choices—specifically, divisionalization, a corporate strategy in which a mother firm creates multiple autonomous divisions—university-firm collaboration in basic research, and investor behavior along with its implication on a startup firm’s optimal crowdfunding design. Collectively, this work examines firms’ various strategic decisions, spanning internal structural choice, research collaboration, and financing schemes.

In Chapter 1, Commitment, Firm and Industry Effects in Strategic Divisionalization, I examine a firm’s choice of organizational form between the U-form (unitary) and M-form (multiple-division). This key long-run decision for firms is argued to be an interdependent (strategic) decision involving all firms in an industry. A model is developed where creating divisions incurs fixed and variable costs, to capture the strategic aspects of this decision in imperfectly competitive industries. This generates predictions consistent with the key stylized fact that, often, only a limited number of firms create independent divisions. Examples include GM versus Ford for national markets and many cases of chain stores in local markets (e.g., McDonald’s vs Burger King). Our analysis indicates a preemption motive for the more profitable M-form in the battle for market share, which managers need to be aware of to develop requisite capabilities.

In Chapter 2, University-Firm Coordination And Competition in Basic Research, I consider two scenarios for non-cooperative basic research between a university and a firm: a basic noncooperative game, a non-cooperative but coordinated game with research grants from the firm to the university. The university and the firm conduct research in order to increase their probability of basic research success, which brings commercial value to the firm and government grants to the university. I compare the performance of the two-stage game with grants and the one-stage basic game. The former leads to a win-win outcome relative to the latter and the effective probability of successful research (a proxy for social welfare) is also higher. I also consider two models of basic research consortium, a research cartel where the research investment decisions of the firm and the university are made in a centralized way to maximize joint payoffs, and a scenario specializing research to the university but in the context of a partnership. Both coordinated scenarios may yield a higher total profit and higher probability of success for research than either of the noncooperative scenarios. The analysis suggests a central role for monetary transfers from the firm to the university, both in the non-cooperative game with grants and in the two coordinated scenarios.

In Chapter 3, A Behavioral Model of Reward-Based Crowdfunding, I set out to solve the bimodal puzzle regarding campaigns’ outcomes in reward-based crowdfunding: Most campaigns either fail with little fund raised or succeed by a small margin. The proposed analytical model consists of a sophisticated entrepreneur and boundedly rational buyers whose decisions are based on a meaningful behavior rule associated with network externalities and time effects. Buyers are assumed to bear hassle costs for pledging and thus only pledge when the campaign has progressed well by their arrival time. The model suggests that the campaign’s success hinges on reaching a critical mass at an early stage, with the bimodal funding outcomes neatly predicted. Rich economic and managerial implications about the best timing to utilize the social network, the caveats in designing discriminatory prices, the (stricter) quality requirement due to buyers’ pledging failure risk for campaigns to succeed in crowdfunding, and on targeted marketing, campaign monitoring, re-campaigning decision... are drawn from the model, giving sights for the entrepreneur to better steer strategy and achieve success in crowdfunding.

Overall, this dissertation provides novel insights into firms’ strategic decision-making in different contexts. By incorporating game-theoretic modeling and behavioral analysis, the three studies offer a comprehensive examination of how firms navigate competition, innovation, and financing constraints. The findings contribute to both theoretical understanding and practical applications, shedding light on the interdependence of firms’ structural choices, the possibility of university-firm partnerships, and the dynamics of investor behavior in crowdfunding markets, ultimately informing better decision-making for firms.