Mechanisms for multi-level marketing

Multi-level marketing is a marketing approach that motivates its participants to promote a certain product among their friends. The popularity of this approach increases due to the accessibility of modern social networks, however, it existed in one form or the other long before the Internet age began (the infamous Pyramid scheme that dates back at least a century is in fact a special case of multi-level marketing). This paper lays foundations for the study of reward mechanisms in multi-level marketing within social networks. We provide a set of desired properties for such mechanisms and show that they are uniquely satisfied by geometric reward mechanisms. The resilience of mechanisms to false-name manipulations is also considered; while geometric reward mechanisms fail against such manipulations, we exhibit other mechanisms which are false-name-proof.