Multilevel marketing: Pyramid-shaped schemes or exploitative scams?

Yair Antler*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Pages (from-to)633-668
Number of pages36
JournalTheoretical Economics
Issue number2
StatePublished - May 2023


  • D84
  • D85
  • D86
  • Multilevel marketing
  • analogy-based expectations
  • misspecified models
  • pyramid schemes
  • speculative trade


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