Advance-Purchase Financing of Projects with Few Buyers

Marco Sahm

No 5560, CESifo Working Paper Series from CESifo

Abstract: I investigate a simple model of advance-purchase contracts as a mode of financing costly projects. An entrepreneur has to meet some 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 traditional funding sources. The entrepreneur uses advance-purchase sur-charges as a price discrimination device. However, the discriminatory power is limited by the problem of free-riding, which is exacerbated as the number of potential buyers increases.

Keywords: pre-ordering; price discrimination; excludable public goods; monopolistic provision; crowdfunding; innovation and R&D (search for similar items in EconPapers)
JEL-codes: D42 G32 H41 L12 L26 O31 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5560

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