The More, the Merrier? The Bystander Effect on Crowdfunding Platforms

From a network externalities perspective, prior studies suggest that social networks can improve fundraising performance on crowdfunding platforms. However, according to the bystander effect in the social psychological literature, the number of project supporters may be negatively associated with fundraising performance. By analyzing 5,773 daily observations from 191 crowdfunding projects on the flyingV platform, we show that the bystander effect harms the daily pledge amount. To mitigate such a negative impact, crowdfunding project creators may signal project legitimacy and use a longer project-funding period to escalate the conversion from bystanders to backers, which in turn enhances the fundraising performance.