The ‘Love Effect’ in Crowdfunding Markets: How Platform Selective Promotion of Projects Affects Value Creation
Digital platforms, as designed marketplaces governed by the platform owner, can design various selection systems (such as selective promotions) to address inefficiencies that affect traditional markets and enhance value-creation opportunities. However, these selection systems may also introduce new market distortions by directing users’ attention to few, selected offerings, leading to greater market concentration. In the context of a crowdfunding platform, Kickstarter, we examine how selective promotions of specific entrepreneurial projects, featured as “projects we love”, help creating a market for distinctive, more innovative projects. We find that there is a strong “love effect” at the market category level: the higher the ratio of “loved” projects in a project category, the higher the amount of funds other (not-loved) projects in the category obtain on average. This spillover effect is especially strong for more distinctive, innovative projects that depart from the prototypical product in the category, which are otherwise less likely to succeed (reach the amount of pledged funds). “Love” is thus contagious. We extend the view of platforms as matchmaking devices by advancing a theoretical view of “market scaffolding”: selective promotions, we argue, are scaffolds the platform owner uses to orchestrate and shape interactions of market participants – creating and steering transaction opportunities towards desired value-creating domains.