Simone Marinesi

Ekaterina Astashkina and Simone Marinesi (2023), All-or-Nothing vs Keep-It-All: Comparing Campaign Designs in Rewards-Based Crowdfunding Platforms, R&R at Management Science.

Abstract: We compare the two most popular campaign designs employed by rewards-based crowdfunding platforms: AoN, in which the entrepreneur collects the money pledged by backers only if the project can raise the funding goal, and KiA, in which the entrepreneur collects the money pledged by backers even when the project is partially financed. KiA reduces backers’ willingness to pay relative to AoN, as the risk that the project may never see the light of day due to a lack of funds increases. However, achieving partial financing of the project under KiA provides cash, which the entrepreneur may choose to keep for herself, as well as a tangible proof of demand for the product, which may in turn unlock additional financing, allowing the project to move forward. We find that (i) a KiA campaign always raises less money relative to an AoN campaign; (ii) despite this, KiA leads to higher profits for projects with low ex-ante financing probability and high retail potential; and (iii) the advantage of KiA stems not from the extra revenues obtained by appropriating backers’ funds, but from increasing the odds to ultimately carry through with the project. KiA further improves when backers can withdraw their pledges before the campaign ends. A new design employed at Seed&Spark, where the campaign succeeds if a minimum fraction of the goal is raised, can dominate both AoN and KiA even when constrained to set the same minimum goal completion for all campaigns, provided that said campaigns share the same retail potential.

Christian Kaps, Simone Marinesi, Serguei Netessine (2023), When Should the Off-grid Sun Shine at Night? Optimum Renewable Generation and Energy Storage Investments, Accepted at Management Science.

Abstract: Globally, 1.5 billion people live off the grid, their only access to electricity often limited to operationally-expensive fossil fuel generators. Solar power has risen as a sustainable and less costly option, but its generation is variable during the day and non-existent at night. Thanks to recent technological advances, which have made large-scale electricity storage economically viable, a combination of solar generation and storage holds the promise of cheaper, greener, and more reliable off-grid power in the future. Still, it is not yet well-understood how to jointly determine optimal capacity levels for renewable generation and storage. Our work aims to shed light on this question by developing a model of strategic capacity investment in both renewable generation and storage to match demand with supply in off-grid use-cases, while relying on fossil fuel as backup. Despite the complexity of the underlying model, we are able to extract two general results. First, we find that solar capacity and storage capacity are strategic complements, except in cases with very high investment in generation capacity, when they surprisingly turn into strategic substitutes, with implications for long-term investment decisions. Second, we develop a simple heuristic to determine which storage technology, within a given portfolio, can turn a profit in the broadest set of market conditions, and thus is likely to be adopted first. We find that currently, low-efficiency, cheap technologies such as thermal can more easily turn a profit in off-grid applications than high-efficiency, expensive ones such as lithium-ion batteries. We then develop two newsvendor-like approximations of the general model that are analytically tractable, yield precise values for the optimal investment decisions and profit in some cases, and provide bounds to the optimal investment decisions and profits in all other cases. To conclude, we calibrate our models to measure the accuracy of our solutions utilizing real-life data from three geographically-diverse islands, and then use our approximations to provide high-level insights on the role that large-scale storage will play in the years ahead as technology improves, carbon taxes are levied, and solar becomes cheaper.

Elena Belavina, Simone Marinesi, Gerry Tsoukalas (2020), Rethinking Crowdfunding Platform Design: Mechanisms to Deter Misconduct and Improve Efficiency, Management Science.

Abstract: Lacking credible rule enforcement mechanisms to punish entrepreneurial misconduct, existing reward-based crowdfunding platforms can leave campaign backers exposed to two sources of risk: the risk that entrepreneurs run away with backers' money (funds misappropriation) and the risk of product misrepresentation (performance opacity). In contrast to prior work, which has mainly focused on studying the first, we examine the adverse consequences of both. We show that not only do both risks have a material impact on crowdfunding efficiency, but they cannot even be analyzed in isolation: rather, their joint presence leads to complex interactions that either dampen or amplify their individual adverse effects. In light of these results, we find that a simple deferred payment scheme with escrow, which the literature argues to be optimal, cannot overcome both sources of friction. We then propose two new designs that Pareto dominate this benchmark. The first design does not rely on escrow, and thus requires less involvement on the part of the platform---but cannot achieve optimality. The second design can restore full efficiency, but requires the platform to take a more active role: we thus provide guidance on how to ease its practical implementation.

Vlad Babich, Simone Marinesi, Gerry Tsoukalas, Updating the Crowdfunding Narrative in Wharton Public Policy Initiative, 7(5).

Ekaterina Astashkina, Elena Belavina, Simone Marinesi (2018), The Environmental Impact of the Advent of Online Grocery Retailing, R&R at Management Science.

Abstract: This study assesses the environmental impact of the advent of online grocery retailing. We model the grocery supply chain before and after the emergence of online grocery retail. The models include suppliers, offline and online retailers, the delivery infrastructure, and households. All firms and households optimally manage their inventory; online retailers also optimally manage deliveries. We compare food waste and transportation emissions before and after the advent of online grocery retail. We isolate three key factors that drive the difference: (i) which households switch to online shopping, (ii) their shopping patterns, and (iii) how the first two factors change where inventories are held. In general, moderate online grocery prices and delivery fees lead to (desirable) adoption primarily by households located “far” from offline stores, neither too frequent shopping nor too large basket sizes by these online households, and enough beneficial inventory centralization—and a consequent reduction in emissions. Numerical calibration using industry and demographic data reveals that in most US cities the advent of online grocery should be beneficial, leading to an eventual 8-41% reduction in emissions; more congested, wealthier, lower offline-store-density cities have the most substantial gains. Finally, making online deliveries from existing offline stores further enhances environmental benefits.

Simone Marinesi, Karan Girotra, Serguei Netessine (2018), The Operational Advantages of Threshold Discounting Offers, Management Science.

Abstract: We study threshold discounting, or the practice of offering a discounted-price service if at least a pre-specified number of customers signal interest in it, as pioneered by Groupon. We model a capacity-constrained firm, a random-sized population of strategic customers, a desirable hot period and a less desirable slow period. Compared to a more traditional approach (slow period discounting or closure) threshold discounting has two operational advantages. First, the contingent discount temporally balances demand when the market for the service is large, and reduces supply of the service (preserving higher margins) when the market is small, allowing the firm to respond to the service’s unobserved market potential. Second, activation of the threshold discount signals the market state and the consequent service availability to strategic customers, inducing them into selfselecting the consumption period to one that improves the firm’s capacity utilization. Yet, threshold discounting can be harmful in situations with chronically low demand. In contrast with past work on strategic customers, their presence is advantageous to firms in our context. A calibrated numerical study shows that threshold discounting improves firm profits over a traditional approach by as much as 33% (7% on average).

Vlad Babich, Simone Marinesi, Gerry Tsoukalas (2017), Does Crowdfunding Benefit Entrepreneurs and Venture Capital Investors?, M&SOM.

Abstract: We study how a new form of entrepreneurial finance - crowdfunding - interacts with more traditional financing sources, such as venture capital (VC) and bank financing. We model a multi-stage bargaining game, with a moral-hazard problem between entrepreneurs and banks, and a double-sided moral-hazard problem between entrepreneurs and VCs. We decompose the economic value of crowdfunding into cash gains or losses, costs of bad investments avoided, and project-payoff probability update. This economic value is generally shared between entrepreneurs and VC investors, benefiting both. In addition, crowdfunding can alleviate the under-investment problem due to moral-hazard frictions. Furthermore, crowdfunding allows some projects to gain access to both VC and bank financing and the competition between those investor classes benefits entrepreneurs. However, competition from other investors reduces value to VC investors, who may walk away from the deal entirely. This can also hurt entrepreneurs who lose out on valuable VC expertise.

Simone Marinesi and Karan Girotra (2014), Information Acquisition through Customer Voting Systems, working paper.

Abstract: We study the use of customer voting systems that enable information acquisition from strategic customers to improve pricing and product development decisions. In these systems, the firm presents customers with a product design and gives them the opportunity to cast a vote on this design, a vote that has costs and benefits. For example, voting may be cumbersome, but those that vote in favor of a design may be eligible for a discount if and when the design gets developed. Customers vote and the firm interprets the voting outcome to discern customer interest in the product, and to advise on further development and/or pricing of the product. We model the interactions between the rm and strategic customers in such systems as a game of incomplete information with voting embedded as a subgame. Our analysis shows that the design and effectiveness of a voting system depends crucially on the intended use of the acquired information. When the acquired information is used to advise on development decisions, where rm and customer interests are aligned, voting systems that reward voters with discounts on subsequent purchase of products, in effect incentivizing voting in favor of products, can elicit information from customers and improve profit. On the other hand, when the information is used to set prices, a decision where firm and customer interests are misaligned, such systems are ineffective. In these cases, voting systems that effectively incentivize customers to vote against products or those that partially limit the firm's future price flexibility should instead be used to acquire information. While both solutions improve firm profit, the former is preferred for high-value products, while the latter is preferred when voting involves less effort. Based on data for two representative products in the home decor industry, we find that these systems may increase gross product profits by up to 50% for development and by 20-30% for pricing.

Karan Girotra, Simone Marinesi, Serguei Netessine (2013), Can Groupon Save Its Business Model?, Harvard Business Review, digital article.