Pyramid scheme: Difference between revisions

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[[File:Pyramid scheme diagram.svg|thumb|upright=1.3|The unsustainable exponential progression of a classic pyramid scheme in which every member recruits six new people. To sustain the scheme, the 2.2 billion people in the 12th layer would be required to recruit 13.1 billion more people for the 13th layer, even though there are not nearly enough [[World population|people in the world]] to achieve that.]]'''A pyramid scheme''' is a fraudulent [[business model]] that generates income primarily through the recruitment of new participants, rather than through the sale of legitimate products or services.<ref name="FTC3" /> Participants are promised payments or services in return for enrolling others into the scheme. As recruitment continues, the structure grows exponentially and eventually becomes unsustainable, since there are not enough new participants to support the scheme.<ref name="BBC3" /> As a result, most people who join a pyramid scheme lose money.

A '''pyramid scheme''' is a [[business model]] which, rather than earning money (or providing [[Return on investment|returns on investments]]) by sale of legitimate [[product (business)|products]] to an end consumer, mainly earns money by recruiting new members with the promise of payments (or services).<ref>{{Britannica URL|topic/pyramid-scheme|pyramid scheme}}</ref><ref>{{cite web |url=https://consumer.sd.gov/fastfacts/marketing.aspx |url-access= |title=Multi-Level Marketing vs Pyramid Schemes |author=Website admin. |year=2024 |department=Consumer Protection |website=consumer.sd.gov |publisher=Office of the Attorney General of South Dakota |___location=|type= |access-date=February 18, 2024 |quote=The difference between a pyramid scheme and a lawful MLM program is that there is no real product that is sold in a pyramid scheme. Participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same. }}</ref> As the number of members multiplies, recruiting quickly becomes increasingly difficult until it is impossible, and therefore most of the newer recruits do not make a profit. As such, pyramid schemes are unsustainable. The unsustainable nature of pyramid schemes has led to most countries outlawing them as a form of [[fraud]].

Pyramid schemes are illegal in many countries and are considered a form of [[fraud]].<ref name="Investopedia3" /> These schemes have appeared globally in various forms and are sometimes disguised as [[multi-level marketing]] programs or investment opportunities.

Pyramid schemes have existed since at least the mid-to-late 19th century in different guises. Some [[multi-level marketing]] plans have been classified as pyramid schemes.<ref name="Smith1984" />

== Concept and basic models ==