We would like to start by saying that . This article explains the schemes that became known as “Pyramid Selling” which is a term that most people have heard of and yet few people understand. This article is intended to explain what is pyramid selling and also what is not a pyramid scheme.
This is where the person or company at the top of the pyramid sources a product and then recruits others to buy stock which they are told to sell at a marked up price to other people that they are to recruit themselves. This second level and all subsequent levels are told to do the same. i.e. mark the price up to ensure that they make a profit and then sell it to others who mark it up to sell to others and so on. The problem with this scheme is that there are no consumers of the product and the product is getting increasingly expensive the further down the organisation it goes. The net result is that there will always be lots of people left with a garage full of stock that is so expensive they can’t sell it. With this type of scheme where there are no genuine consumers there will always be a lot of people losing money. Fortunately these product based schemes have largely died out as they are illegal.