Critical network effect induces business oscillations in multi-level marketing systems

Abstract: The "social-networking revolution" of late (e.g., with the advent of social media, Facebook, and the like) has been propelling the crusade to elucidate the embedded networks that underlie economic activity. An unexampled synthesis of network science and economics uncovers how the web of human interactions spurred by familiarity and similarity could potentially induce the ups and downs ever so common to our economy. Zeroing in on the million-strong global industry known as multi-level marketing, this study finds that such a socially-powered enterprise can only work stably through discrimination about who to make entrepreneurial connections with.