Advance-Purchase Financing of Projects with Few Buyers

Marco Sahm ()
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Marco Sahm: University of Bamberg and CESifo Munich

Review of Industrial Organization, 2020, vol. 57, issue 4, No 9, 909-933

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: D42 G32 H41 L12 L26 O31 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11151-019-09742-1

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