Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123193
Authors: 
Sahm, Marco
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5560
Abstract: 
I investigate a simple model of advance-purchase contracts as a mode of financing costly projects. The analysis can easily be reinterpreted as a model of the monopolistic provision of excludable public goods under private information. 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 is able to use 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. I apply the model to research and development activities in the health industry, discussing the availability of new drugs and vaccines in poor countries.
Subjects: 
pre-ordering
price discrimination
excludable public goods
monopolistic provision
crowdfunding
innovation and R&D
JEL: 
D42
G32
H41
L12
L26
O31
Document Type: 
Working Paper

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