What is pyramid scheme ?

Defination: 

  • A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public
  • Various forms of pyramid schemes are illegal in many countries all over the World.
  • In a pyramid scheme, an organization compels individuals to make a payment and join. In exchange, the organization promises its new members a share of the money taken from every additional member that they recruit. 
  • The directors of the organization (those at the top of the pyramid) also receive a share of these payments. For the directors, the scheme is potentially lucrative-whether or not they do any work, the organization's membership has a strong incentive to continue recruiting and funneling money to the top of the pyramid.
  • Pyramid schemes-also referred to as franchise fraud or chain referral schemes-are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. 
  • The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses.