Advance-purchase financing of projects with few buyers

Arbeitspapier

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 surcharges 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.

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• ISBN: 978-3-943153-37-8
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BERG Working Paper Series ; No. 118

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Monopoly ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Public Goods ; Monopoly; Monopolization Strategies ; Entrepreneurship ; Innovation and Invention: Processes and Incentives
• Subject: pre-ordering ; price discrimination ; excludable public goods ; monopolistic provision ; crowdfunding ; innovation and R&D

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sahm, Marco
• Event: Veröffentlichung
• (who): Bamberg University, Bamberg Economic Research Group (BERG)
• (where): Bamberg
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/152259