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Advance-Purchase Financing of Projects with Few Buyers

  • Marco SahmEmail author
Article
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Abstract

I investigate a simple model of advance-purchase contracts as a mode of financing costly projects. An entrepreneur has to meet a capital requirement in order to start production and sell the related good to a limited number of potential buyers who are privately informed about their willingness to pay. I find that advance-purchase arrangements enable more costly projects to be financed than is true for traditional funding sources. The entrepreneur uses advance-purchase surcharges as a price discrimination device. However, the discriminatory power is limited by the problem of free-riding.

Keywords

Crowdfunding Excludable public goods Innovation and R&D Monopolistic provision Pre-ordering Price discrimination 

JEL Classification

D42 G32 H41 L12 L26 O31 

Notes

Acknowledgements

I am very grateful for insightful comments and helpful suggestions from the editor, two anonymous referees, Paul Belleflamme, Matthew Ellman, Sjaak Hurkens, Thomas Lambert, Martin Peitz, Markus Reisinger, Armin Schwienbacher, Roland Strausz, David Zvilichovsky, and many participants of various economic seminars and conferences.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.University of Bamberg and CESifo MunichBambergGermany

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