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I'll Buy That For A Dollar!

I dunno about you, but I keep hearing ads for these "penny auction" web sites where you can get amazing deals on stuff. I was intrigued, so I checked out a couple of them, because they struck me as really good -- possibly too good to be true.

My hunch was correct. In my opinion, they are too good to be true.

The model seems simple: you see something, you put in your maximum bid and sit back. If you are the high bidder, you get it. Just like any other auction. And to guarantee the lowest possible sale, the bids are all in one-penny increments. So you end up getting deals like a 60" TV or a $25 Wal-Mart gift card for less than five bucks. Sounds great, huh?

That's when two loopholes kick in -- loopholes that are guaranteed that the bidder pays more and more and more money.

First up, those one-penny increments? You pay the auction site for each bid. And you pay for them whether you're the winner or loser.

That $5.00 TV? The one that started at a penny? The auction company just collected for 500 bids. And 499 of them were fees for the privilege of not winning the TV.

And they often use another subtle little gambit to maximize the price. The auctions have no set time limit. Every bid (most of them automated) resets the auction closing time. So you can have an auction ending in "15 seconds" that goes on for hours or even longer. Which means no "sniping" -- last-second bids to get the best deal possible.

Oh, it's all legal. The two site I checked out describe it in great detail -- detail so great that it must have been written by lawyers with instructions to "make it as obtuse and as boring as possible, but put in all the details so they can't say it's a scam."

In a way, it reminds me of the classic Ponzi scheme (and not in any kind of legal sense, I feel I must say). In both cases, the early participants are the ones who reap the great benefits. But as the enterprise grows and more people participate, it becomes less and less and less likely that you can reap any benefit yourself -- but instead just spend your money and end up with nothing.

Now, I don't think they're breaking any laws, and I don't think that the law should be changed to ban these sites. I, generally, don't believe in using the law to protect people from themselves, and folks who don't recognize the wisdom of "if it sounds too good to be true, it probably is" and do their homework before they spend their money kinda sorta need to learn their lessons somehow.

So in that spirit, I'm tossing this out here -- one guy's opinion on the whole "penny auction" biz, discussing what I, personally, think about them.

And remember what they say about free advice -- it's worth every penny you paid for it.

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Comments (12)

Do we have to pay you $0.60... (Below threshold)
engineer:

Do we have to pay you $0.60 for every comment from now on?

Engineer, just for you, it'... (Below threshold)

Engineer, just for you, it's only a quarter. Just don't tell everyone; they'll want the same deal.

J.

Chumps. Kevin's been givin... (Below threshold)
Jim Addison:

Chumps. Kevin's been giving me a 15 cents per post rate for years - and on days when I'm active, I get five for a dollar.

Of course I had to buy the $100 Gold Membership to get that rate, but the savings add up fast.

I looked at one of those to... (Below threshold)
Jeff Blogworthy:

I looked at one of those too. It quickly became apparent that it's basically a gambling operation. As usual, the game is rigged so the house always wins.

Yeah, I looked at those als... (Below threshold)
JLawson:

Yeah, I looked at those also - it was pretty clear that at a buck a penny bid you could lose some hefty change quickly. And if you get auction fever, the potential for loss was REALLY high.

(Plus - now that I think about it, I wonder how many of those bids are bots, programmed to push things up to a certain level so no money's lost on the item.)

I've been charging my comme... (Below threshold)

I've been charging my comments to Hugo Chavez Paypal account.

If it sounds too good to be... (Below threshold)
PBunyan:

If it sounds too good to be true, it is.

Then again Obama got tens of millions of votes so there is a big market for scam sites like those.

It's totally a scam. Each ... (Below threshold)
J-Ho:

It's totally a scam. Each bid costs a dollar. That watch that only cost you $1.15 really cost you $21.15 because you bid 20 times. Plus all the bids everyone else made means that $50 watch made them $115 dollars.

With that said, there are ways to beat the system. I used my free bids and bid strategically and got a Blu-Ray Sony 7.1 system for $0.99 plus shipping. But that's the exception and I won't be "gambling" there any time soon.

I read that they had 12 win... (Below threshold)
bg:

I read that they had 12 winners a month on items. Half the bids are for more credits. Lottery type odds. The big losers....YOU.

I believe I might actually ... (Below threshold)
Sky Captain:

I believe I might actually pay Art W a dollar just to go away. Emphasis on "might".

While the sites and describ... (Below threshold)

While the sites and described activity are legal, I think it is highly likely that these sites and particularly the people who run them are in fact criminal. I watched one of them with interest. They gave me a free 10 bids. I watched how the exact same people bid repeatedly over and over for the same item, typically even many items. I downloaded the auction numbers and revealed that if the people making those bids paid ~25% of the going rate on average for their bids they were breaking even. Many times they would have had to pay only a few pennies for each bid to make that particular auction a winner for them. I followed 6 particular bidders. Only one of which I concluded was a legitimate bid pack buyer, they just happened to be heavily invested at the start of my review.

I understand that they could in theory win enough of those bids in bid pack auctions on the site, or maybe even have special arrangements to buy at a discount. For the first idea, it would have required these individuals to have built up significant numbers of bids well in advance of the auctions I watched, as the number of bid packages that were present on the site in the two week period was very much insufficient to account for more than 25% of their bids and that was calculating up the idea that they won 80% of the listed bid packages, which for the record, it did not appear as though they did. For the second idea, it would definitely have to break the law if they had such an arrangement with outside groups that they essentially made guaranteed winners by selling bids for effectively less than 25% of the cost they charge for everyone else, particularly dependent on the relationship with that outside group, as well that it is not documented that these groups have this outweighed level of advantage.

So, while the site idea is perfectly legitimate, if not downright stupid to pay to play on. I think the activities of the owners of the sites certainly cross the line from legal to illegal in some ways.

Great article , Thanks for ... (Below threshold)

Great article , Thanks for sharing all this information with us.




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