In a recent article for Law360, Brattle consultants analyze the Federal Trade Commission’s (FTC’s) analytical framework for assessing direct selling companies and discuss the key questions that should be asked from an economic perspective when determining whether a direct selling company operates as a legal organization.
Distinguishing companies with legitimate direct selling compensation models from those operating as pyramid schemes is ultimately an empirical question that cannot be answered without access to and analyses of distributor-level business intelligence data for the direct seller. In September 2021, the FTC published a paper describing an analytical framework that FTC Consumer Protection economists use to assess direct selling organizations. However, the authors note that the FTC’s implementation creates a framework that provides many false positives, resulting in the improper conclusion that a legitimate direct selling company is running a chain letter and offers a product with no economic value.
The full article, “FTC’s Framework For Assessing Direct Selling Cos. Is Flawed,” authored by Principal Dr. Branko Jovanovic, Senior Associate Dr. Pablo Robles, and Senior Research Analyst Lia Bozzone, is available below.