Multilevel marketing: pyramid-shaped schemes or exploitative scams?

Yair Antler ()
Additional contact information
Yair Antler: Coller School of Management, Tel Aviv University

Theoretical Economics, 2023, vol. 18, issue 2

Abstract: Motivated by the growing discussion on the resemblance of multilevel marketing schemes to pyramid scams, we compare the two phenomena based on their underlying compensation structures. We show that a company can design a pyramid scam to exploit a network of agents with coarse beliefs and that this requires the company to charge the participants a license fee and pay them a recruitment commission for each of the people that they recruit and that their recruits recruit. We characterize the schemes that maximize a company's profit when it faces fully rational agents, and establish that the company never finds it profitable to charge them a license fee or pay them recruitment commissions.

Keywords: Multilevel marketing; pyramid schemes; bounded rationality; reward schemes; coarse reasoning (search for similar items in EconPapers)
JEL-codes: D84 D86 L29 (search for similar items in EconPapers)
Date: 2023-05-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://econtheory.org/ojs/index.php/te/article/viewFile/20230633/36529/1094 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:the:publsh:4890

Access Statistics for this article

Theoretical Economics is currently edited by Federico Echenique, Mira Frick, Pablo Kurlat, Juuso Toikka, Rakesh Vohra

More articles in Theoretical Economics from Econometric Society
Bibliographic data for series maintained by Martin J. Osborne ().