We study the various network effects that are at work on crowdfunding platforms. From a theoretical perspective, we distinguish between network effects that relate to participation or to usage decisions. We use novel entrepreneur-backer data to identify their relative importance on project funding dynamics. We empirically show that backers decide on their usage of the platform based on intra-project activity – as documented by prior work – but also on inter-project activity. In a difference-in-differences research design, we estimate that inter-project network effects account for 2-3% in the increase of contributions that projects generate on a daily basis. Then we find that participation decisions create a positive feedback loop fueling the growth of the platform and explaining how positive inter-project network effects can arise. Our results represent the first attempt in the literature to unbundle the web of network effects on project funding dynamics and suggest that many existing results in the crowdfunding literature are driven by network effects.

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Keywords Crowdfunding, Digital Platforms, FinTech, Network Effects, Multisided Platforms
JEL Oligopoly and Other Forms of Market Imperfection (jel D43), Pension Funds; Other Private Financial Institutions (jel G23), Transactional Relationships; Contracts and Reputation; Networks (jel L14), Entrepreneurship (jel L26), Information and Internet Services; Computer Software (jel L86)
Persistent URL hdl.handle.net/1765/112014
Belleflamme, P, Lambert, T, & Schwienbacher, A. (2018). Network Effects in Crowdfunding. Retrieved from http://hdl.handle.net/1765/112014