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A Marketing Scheme for Making Money off Innocent People: A User's Manual

Author

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  • Basu, Kaushik

    (Cornell University)

Abstract

Firms often give away free goods with the product that they sell. Firms often give stock options to their top management and other employees. Mixing these two practices--giving stock options to consumers who buy the firm's product--, creates a deadly brew. Large numbers of consumers can be lured into buying this product, giving the entrepreneur huge profits and the consumers a growing profit share. But this is a camouflaged Ponzi that will ultimately crash. By analogy it is argued that the common practice of giving stock options to employees can be a factor behind financial crashes.

Suggested Citation

  • Basu, Kaushik, 2009. "A Marketing Scheme for Making Money off Innocent People: A User's Manual," Working Papers 09-09, Cornell University, Center for Analytic Economics.
    • Handle: RePEc:ecl:corcae:09-09
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    File URL: https://cae.economics.cornell.edu/09-09.pdf
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    Cited by:

    1. Basu, Kaushik, 2009. "A Simple Model of the Financial Crisis of 2007-9 with Implications for the Design of a Stimulus Package," Working Papers 09-11, Cornell University, Center for Analytic Economics.
    2. de Andrés, Pablo & Arroyo, David & Correia, Ricardo & Rezola, Alvaro, 2022. "Challenges of the market for initial coin offerings," International Review of Financial Analysis, Elsevier, vol. 79(C).
    3. David J. Scheaf & Matthew S. Wood, 2022. "Entrepreneurial Fraud: A Multidisciplinary Review and Synthesized Framework," Entrepreneurship Theory and Practice, , vol. 46(3), pages 607-642, May.
    4. Kaushik Basu, 2016. "Beyond the Invisible Hand: Groundwork for a New Economics," Economics Books, Princeton University Press, edition 1, number 9299, December.
    5. Kaushik Basu, 2011. "A simple model of the financial crisis of 2007‐2009, with implications for the design of a stimulus package," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 4(1), pages 5-21, April.

    More about this item

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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