Stuck in the Middle : Context Effects in Reward-Based Crowdfunding Menus

Reward-based crowdfunding (RBC) is a growing industry in which consumers choose valuable innovations directly. We explore how menu design affects consumer choice in RBC by introducing an extensive dataset of Kickstarter menus. According to our findings, consumers prefer menu options with close neighbors for both lower- and higher-priced neighbors. The cross-price elasticity for lower-priced neighbors is positive (0.118, p < 0.001), while it is negative for higher-priced neighbors (−0.0528, p < 0.001). These results defy the neoclassical model; Kickstarter menus are explicitly made of substitutes because only one option can be purchased, and substitutes should have positive cross-price elasticity. Rather, our findings are consistent with the context effects bias, in which inferior menu options elicit favorable comparisons for other menu options, ultimately increasing demand. Additionally, using a novel identification strategy, we examine the distinction between salience and inferiority by demonstrating that the largest demand increase due to adjacent neighbors occurs when higher-priced neighbors are 75 to 100 percent more costly than the focal alternative. Finally, we show that this excess demand comes at the expense of the outside option for consumers browsing a Kickstarter menu–concurrent campaigns