Bidding fee auction
A bidding fee auction, also called a penny auction, is a type of all-pay auction in which participants must pay a non-refundable fee to place a small incremental bid. When time expires, the last participant to have placed a bid wins the item and also pays the final bid price, which is purportedly significantly lower than the retail price of the item. The auctioneer makes money in two ways: the fees for each bid and the payment for the winning bid.
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[edit] How it works
Participants pay a non-refundable fee to purchase bids. Each bid increases the price of the item by a small amount, such as 0.01 USD (1¢) or 0.01 GBP (1p), and extends the time of the auction by a few seconds. Bid prices vary by site and quantity purchased at a time, but generally cost 10–150 times the price of the bidding increment. Once the auction is over, the auctioneer collects the final cost of the item in addition to the money already collected by selling bids. A TechCrunch article on MadBid, one such site, called this model "a license to print money."[1]
For example, if an item worth $1,000 sells at a final price of $60, and a bid costing $1 raises the price of the item by $0.01, the auctioneer receives $6,000 for the 6,000 bids and $60 as the final price, a total of $6,060. This represents a profit of $5,060 for the auction site. Assuming the winning bidder used 150 bids in the process, they would have paid $150 for the bids and $60 for the final price, a total of $210 and a savings of $790.
Some auction websites offer a 'Buy It Now' feature which allows users to apply the money spent on bids during an auction to the full retail price of the item.
[edit] Criticism
Due to the possibility of participants spending a lot of money and still losing an auction, or spending more than the retail value of the item they end up winning, some analysts have criticized the model or compared it to gambling.[2][3][4][5][6] The Better Business Bureau listed penny auctions as one of their Top Ten Scams of 2011.[7]
Some bidding fee auction sites have been shut down by state governments after investigations. Wavee US, LLC, settled with the Governor's Office of Consumer Protection in Georgia and agreed to close its web site after the office received complaints about merchandise not being shipped in a timely fashion. Washington state shut down PennyBiddr after a lawsuit in which the state accused PennyBiddr of using shill bidding to drive up prices and extend auctions, a claim originally made by members of the penny auction community.[8] In addition, several auction sites which claimed to be Better Business Bureau "Accredited" were not members of the BBB or had poor ratings with the BBB.[9]
Some Craigslist users have fallen victim to scams where a "seller" of an item on Craigslist refers would-be buyers to sign up for a bidding fee auction site. These sites then charge customers an up-front fee for a pack of bids and pay a commission to the scammer who referred a new customer to the site. The CEO of one site implicated in an MSNBC investigation blamed this behavior on rogue affiliate marketers.[10]
[edit] See also
- Auctionair, an auction based web site that charges bidding fees. Has both High and Low Bid auctions.
- Dollar auction, a game theory experiment similar to penny auctions
- Swoopo, a defunct web site which charged bidding fees
- Unique bid auction, another auction style in which bidders pay for entry and ending prices are very low
[edit] References
- ^ Penny auction site MadBid secures £4m funding from Atomico Ventures
- ^ http://www.codinghorror.com/blog/archives/001196.html
- ^ Gimein, Mark (2009-07-12). "The Big Money: The Pennies Add Up at Swoopo.com". The Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100684.html. Retrieved 2010-04-26.
- ^ http://www.codinghorror.com/blog/archives/001261.html
- ^ http://technologizer.com/2008/09/17/is-swoopo-nothing-more-than-a-well-designed-gimmick/
- ^ An iPad for $2.82, or illegal gambling?
- ^ BBB Names Top Ten Scams of 2011
- ^ PennyAuctionWatch article on Pennybiddr
- ^ Most online penny auctions just don't make any sense
- ^ Craigslist users fight surprise $89 charges from penny auction site
[edit] External links
- Penny Auction Watch, a blog and forum covering the penny auction industry
- Globe and Mail article
