01.Introduction
Through our investigation into penny auctions, CHOICE has discovered that even if you spend a lot of money on your bids, there's a good chance you'll still end up losing.
The lure of a bargain can be hard to resist but as the old adage goes, if it sounds too good to be true, it probably is.
It’s possible to spend more on penny auction bids than you would buying something at a shop.
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What if we told you there is a website where you can buy an iPad for $34? It’s not a fake – it’s new and shiny and made by Apple. And that Nintendo Wii your kids have been bugging you for? You could be lucky enough to get it delivered for around $24. It comes with a warranty and hasn't fallen off the back of a truck.
Tempted? So were we.
When CHOICE received several Shonky nominations for websites such as DealFun and BidFun, we were perplexed. On the surface they looked like legitimate online auctions similar to eBay.
But instead of paying hundreds of dollars for expensive electronics, bidders were winning items at ridiculously low prices. A $30 iTunes gift card went for under $2, and a Sony HD Camcorder for less than $30.
It’s practically a steal, so what’s the catch? People can end up paying hundreds of dollars for bids without actually winning a thing.
There are many penny auction sites out there, but they generally all work the same way.
Penny auctions have no reserve, and consumers pay to place small bids (usually about $.02) on an item. Each time someone bids the auction extends, but when the clock runs out and no one bids extend it, the last bidder wins and pays the final, usually cheap, price.
The auction has no reserve. To participate, a consumer pays a fee (usually around $.60 to $1, sometimes cheaper in bulk) to place a small bid (usually about $.02) on an item. Each time the price of the item goes up by this tiny increment, the auction extends by about 10 to 20 seconds. When the clock runs out and no bids are placed to extend it, the last bidder wins and pays the final price, usually significantly cheaper than the RRP.
In practice, auctions for popular items like iPads can go on for days, creeping up cent by cent. And with each cent, someone is losing money – in essence the super cheap deal at the end is subsidised by those who don’t win the item after all. So that $34 iPad? We estimate that was up to a $1734 boon for the auction operator.
“It sounds great, but isn't… It’s a waste of time and money,” one reader told CHOICE.
“[It] costs you a fortune to buy bids and you use a hell of a lot more bids than you would think you need. Add to that, the time you have to spend on the computer, just hoping you are online at the right time.”
The trouble is there is no right time, because there are plenty of those willing to give up a night or two of sleep for the ultimate prize of a cheap gadget.
Overseas operations
And in at least one case we noticed, although the website had local domain names, they are just different interfaces for the same auction.
So you may think you’re just bidding against other Australians, but people around the world have their eye on that Nintendo DS too.
It doesn’t even bother to convert currencies between Canadian, Australian, and New Zealand dollars, despite a marked real world difference - suggesting that the actual price paid for the auction item is a negligible portion of the website’s earnings.