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Is ComCom structuring of a business a Ponzi/Pyramid scheme?
Pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered and as any other business structuring, ComCom may be sustainable or non-sustainable business model.
With each each entry of a new c-holder, all the current c-holders are losing shares, and are not gaining more shares, and therfor all, or majority of, the current c-holdres must agree for each entry of such new c-holder. In which case, the price of the shares of the ComCom may change and even benefiting differently the p-holders vs the c-holders, but the balance of power is well distributed, such that each c-holder has more power than p-holder, if both hold the same number of shares.
It is always true that, for any ComCom, with each entry of additional c-holder each of its current c-holders losses $1/c$ of the shares owned by the one, hence in which case even for having unchanged value held by each c-holder, the price of each share must be at the same time increased by $1/c$ of the share and that is determined only by the market forces and true for ALL the shares of company.
At any rate ComCom structuring does not incentive recruit others c-holders by the current c-holders, unless they are convinced in their activities and/or the value of the ComCom presumably reflected by its service/product. Furthermore, in the case of the value held by each c-holder (the $v$) remaining contestant with each entry of new c-holders, the ones who see increase in the value of their shares are only the p-holders, as the value of the ComCom then is $t+=v/d$. Hence, by merely increasing the number of c-holders and only proportionally to $d$, only the p-holders could get incentive recruit others c-holders.
If the c-holders preferred by the ComCom are also its clients, employees and/or contractors, then recruiting them as a factor for making profit for the p-holders is exactly the same as the case for the shareholders of any non ComCom business, when recruiting clients, employees and/or contractors, except that in ComCom the profit for p-holders is only $(1-d)*100$% and not $100$%.
Recruiting p-holders, based on the increase of $c$ and steady $v$, is on the account of the current p-holders selling their shares, this A) should actually perform such increase in $c$ and B) only cause better distribution of wealth, but now also between the p-holders and if the share price would increase more then only allowing steady $v$ then also the c-holders would benefit.
Since all the above changes are of values multiplied with $1/c$, the bigger is $c$, these changes are dramatically decreased, hence, as the scale increases, the structuring of ComCom is less affecting those exiting or new c-holders entering the ComCom, and this is in fundamental contradiction with any Pyramid scheme based on large and getting larger scale of recruiting others into the scheme just for surviving.
ComCom structuring of a business is not a Ponzi/Pyramid scheme. In merely recruiting more c-holders, ComCom structuring either in small scales works against the model of Ponzi/Pyramid scheme or as larger is the scale this affect is dramatically decreased, but the ComCozing introduces a new balance of power which is better distributed, such that each c-holder has more power than p-holder, if both hold the same number of shares (for precisely why see 3. Practical calculation:).
A fund of hedge funds vs Pyramid scheme:
A hedge fund is a private investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of activities than other investment funds and also pays a performance fee to its investment manager. Hence a fund of hedge funds manged by the same investment manager, by the same definition, overcomes the limitation of range of investors, while still keeping the manner of exclusivity for becoming a member in each of the hedge funds. If such fund of hedge funds also keeps the manner of secrecy, it might very much be also relying constantly on enrolling other people into the scheme, in which case, as in the madoff case (in which capital from new investors would have been used to pay "dividends" to earlier investors), it is a Pyramid scheme, when its product or service are nothing else than (high constant) return only for its investors (being the members of the scheme).
By namzezam, on 17 Dec 2008 17:53 history Tags:
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