It's a tempting offer -- place a bid and get a chance to win big-ticket items at a fraction of their retail cost. With prices starting as low as zero and increasing by just one cent with each bid, penny auctions are growing in popularity. But while a few lucky winners may walk away with deep discounts, most people may end up spending more than saving. Commercials for these websites often say things like "Get a $600 laptop for just $8.72" but how can that be? An investigation by Consumer Reports found that while one person may win an auction, everyone else loses and the website makes a lot of money.
There are now more then 100 of these websites online. Researchers checked out Quibids to see what it would take to win a $600 Samsung tablet computer. Even when you are the highest bidder -- as the auction clock approaches zero, the competition heats up. According Anthony Giorgianni "The sites can make a lot of money when there's a bidding war because they charge you every time you bid. A typical bid costs 50 cents to a dollar and the site keeps your money whether you win or lose."
As an example if the winning price is $100 and each bid costs 50 cents the site could bring in as much as $5,000 selling a $500 laptop. Amanda Lee founded a web site called Penny Auction Watch after she had some bad experience bidding. She says it's easy to get caught up in the game and lose your head. Lee says "I once spent $200 bidding on a $50 gift card and I didn't even win it. One way Penny Auctions make money is by adding seconds to the clock after every bid, so with auctions for popular items like electronics bidders keep jumping back in hoping to win. The best advice is buyer beware. While there is a slim chance you could get a good deal -- you could end up losing a lot of money and get nothing at all.
Key Points:
- In penny auctions, participants often pay a non-refundable fee to place a small incremental bid on items
- When the auction expires, the last bidder wins the item and pays the final bid price. Each bid increases the price by a cent and extends the time of the auction by a number of seconds
- Bidding on items in an online penny auction means you will pay to play each time, even if you lose. There is only one winner.
- Bidders will often collectively spend more money bidding on an item than the final auction price of the item
- Some auction websites will now credit accounts for used bids if the user didn't win or offer a ‘Buy It Now' feature that allows users to use money spent on bids towards the full price of an item
- In 2010, the Better Business Bureau warned Canadian consumers about online penny auctions, including Swipebids.com, an Edmonton-run operation
Things To Watch Out For:
Shill Bidding -- Penny auction owners, their friends or employees place bids on items in an attempt to raise the price, extend the auction and trigger a bidding war among real bidders
Bidding Bots -- Programs that create fake user profiles to place fake bids in an attempt to raise prices and lead real bidders into believing they are bidding against others
Non-Delivery of Items Won -- Many failed or new sites may not end up shipping products that have been won
Credit Card Fraud & Identity Theft -- The collection of credit card or debit card information from users and the potential sale of this information for additional profit
