You’ve seen those ads for penny auctions, haven’t you? A Motorola Xoom for $5, a Chanel handbag for $10, a laptop for $7. It isn’t these are fraudulent in some way. It’s just that these lead you to believe the prices really are going to be that cheap. These are called penny auctions because the auction items that you get to bid for start at $0. And they move up a penny at a time.
Only two years ago, penny auctions were this novel thing no one had ever heard of. Today, there are more than 100 such websites offering you auctions, stuff to buy out right then, and all kinds of gift cards. With names like BidHere and QuiBids, these websites are a wildly popular all around the world. Typically, these sites sign on 1000 new users every day.
So is all quite rosy? People get to bid on great auction items for next to nothing; what could be wrong with that? The Better Business Bureau reports hundreds of complaints from last year alone. And most of them have to do with how penny auctions looks surprisingly like gambling deals.
But there are other problems. Consider the bidding process on eBay. When you bid to buy something, you bid for free. But your bid had better raise the auction by at least a dollar. On these penny auction sites, your bid increment may be no more than one cent; but for each bid, you pay the auction website one dollar in fees. When you look at the time remaining on an auction on a penny auction site, it indicates nothing useful to. If there are only two minutes left, it still could go on for hours. Because each time a person bids, the auction gets extended by a few seconds.
Penny auction sites are great value because they collect money from so many people for each single item. They buy a $2000 Nikon camera and offer up on auction. About 250 people try to bid pennies for it; all their bidding fees add up and the auction site makes far more than the $12000. In the end, they’re able to give it to the winner for $125 and not mind it because they made an extra $10,000 in bidding fees in the bidding process. The winner might only be paying $125 for the product itself; but he surely spent $900 on fees. He hasn’t really struck such a great bargain.
Some people hate that they’ve had to pay so much in fees for these auction items; and they sue the penny auctions for running some kind of a lottery. The auctions, for their part, claim that you can hardly call them lotteries, since they let every person who hasn’t, won apply all the fees he has racked up towards shopping elsewhere on the site (buying things at inflated prices). Basically, you aren’t going to win unless you really know the system. A novice is probably never going to win.