UCL School of Management is delighted to welcome Eunsoo Kim, University of Michigan, to host a research seminar discussing ‘Social versus economic factors in network formation: An empirical analysis of the multi-level marketing industry.’
Unlike business networks, where relationships are mainly driven by economic benefits, Multilevel Marketing networks, one type of business networks, are unique as the existing understanding on the relationship formation between distributors (IBOs) and the new joiners is mainly on the social aspects. We leverage a novel dataset provided to us by a large MLM rm to examine the importance of economic returns network formation versus that of social motives in determining the formation of the networks. We also examine the role of current network structure in network formation. In order to reflect disparate perspectives in creating the relationship from the two sides (new joiners’ and current distributors), we use a two-sided matching model estimated using Bayesian estimation. Our results suggest that network formation is determined broadly two different sources of information representing the potential economic returns for both sides. As a new joiner, business support related information (including social hierarchy) mattered in network formation. IBOs on the other hand placed an importance on information that could signal the future potential income of new joiners. Demographic homophily and geographic distance also had a significant impact on matching.