Simone Marinesi

Ekaterina Astashkina and Simone Marinesi (2022), 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: All-or-Nothing (AoN), in which the entrepreneur collects the money pledged by backers only if the project can raise the funding goal set for the campaign, and Keep-it-All (KiA), in which the entrepreneur collects the money pledged by backers even when the project is partially financed (funds raised are less than the funding goal). On the one hand, KiA reduces backers’ willingness to pay relative to the AoN design, as the risk that the project may never see the light of day due to a lack of funds increases. On the other hand, achieving partial financing of the project under KiA provides cash as well as a tangible proof of demand for the product, which may in turn unlock additional financing from a third party (e.g., a bank), allowing the project to move forward. As a result, we find that a KiA campaign always raises less money relative to an AoN campaign. Moreover, for certain projects KiA fails at raising funds altogether. Despite these limitations, we show that KiA can lead to higher profits than AoN for projects where a low ex-ante financing probability is coupled with a high retail potential. When backers can check the status of the campaign before it ends and may decide to withdraw their pledges, we find that KiA performance improves both in absolute terms and relative to AoN.

Christian Kaps, Simone Marinesi, Serguei Netessine (2021), When Should the Off-grid Sun Shine at Night? Optimum Renewable Generation and Energy Storage Investments, Major Revision at Management Science.

Abstract: Renewables have become the cheapest energy source in most of the world, but their generation remains variable and difficult to predict. Recent technological advances have rendered large-scale electricity storage economically viable, thus mitigating the renewable intermittency issue and enabling combinations of renewable generation plus storage, e.g., wind farms and batteries, to be potentially viable candidates to replace fossil fuel power plants. However, it is not yet well-understood how to jointly determine optimal capacity for their generation and storage. Our work aims to shed light on this question by developing a two-product newsvendor model of a utility's strategic capacity investment in renewable generation and storage to match demand with supply, while using fossil-fuel backup, if needed. We establish optimal capacity guidelines contingent on market and technology parameters. We find that renewable generation and storage are strategic complements, except in cases with very high penetration of either technology, when they surprisingly turn into strategic substitutes. We also develop sufficient and necessary conditions, as well as a simple heuristic, to determine which of the many storage technologies can turn a profit in the broadest set of market conditions, and thus is likely to be adopted first (for multi-hour storage). In particular, we show that low-efficiency, cheap technologies, such as thermal, can turn a profit easier than high-efficiency, expensive ones, such as lithium-ion batteries. Using real-life data from Europe and the US, we calibrate our model to provide insight on the role that large-scale storage plays in both the short- and long-term, while technology improves, emission taxes are levied, and renewables become cheaper. Finally, we show that, when generation and storage investment decisions are made by different players, investment levels decrease relative to the monopoly outcome.

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, RR 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).

Elena Belavina, Simone Marinesi, Gerry Tsoukalas (2018), 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 (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.