Multilevel marketing networks in less-developed countries

Abstract

A mathematical dynamic economic model of a hierarchal periodic marketing system is constructed. Goods move from producers through many traders and many markets, first being bulked as they ascend through the several levels of the market hierarchy and then being distributed as they descend the hierarchy in another region. Such a complex system is typical for many Third World countries where a commodity is produced in one region and distributed to consumers in another. Unlike most models of marketing, transportation, and storage systems, our model is founded upon the individual transportation and storage behaviors of the traders, who, we assume, have nonlinear marginal operating costs and are provided with possibly incomplete and tardy market news. The traders' individual behaviors are then aggregated and combined with the supply schedules in the initial producers' markets and with the demand schedules in the final consumers' markets to obtain the overall model. It is a truly dynamic one and provides through recursive analyses time series in all prices and quantity flows. In general, the overall system remains in dynamic disequilibrium even though its individual markets keep clearing under perfect competition on every market day. This is a realistic result. It is also shown that the system has a unique equilibrium state, which may however never be attained. The paper concludes with some computer-simulation studies, which indicate the effects of varying the systems parameters.