Through our investigation into penny and one cent 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.
As the saying goes, if it sounds too good to be true, it probably is. It’s possible to spend more on one cent auction bids than you would buying something at a shop. Don't get lured into gambling away a fortune chasing that 42 cent bottle of champagne or $20 iPad.
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What's the story?
CHOICE first learned of penny auction websites when several were nominated for the Shonky Awards back in 2011. They came to our attention again earlier this year when we started reading glowing press coverage of new Australian entrants to the market, which represented them as akin to legitimate online auctions similar to eBay. But what’s the catch?
- Consumers lured by the promise of a bargain can end up paying hundreds of dollars for bids without actually winning a thing.
- One cent auctions operate similarly to gambling sites.
- There's little or no oversight of the market.
- Consumers can start chasing their losses, and lose a lot more than they expected.
There are many one cent auction sites out there, but they generally work the same way.
In order to participate in an auction, a consumer has to buy a package of bids. Usually there's a sweetener: a small number of free bids when you sign up with a site. The auction usually has no reserve - so it starts from zilch. A consumer then places small bids (usually the price goes up by one or two cents) on the item. Each time someone bids the auction extends, but when the clock runs out and no one's bid extends it, the last bidder wins and pays the final, seemingly cheap, price.
In practice, auctions for popular items like iPads can go on for days, weeks or even months, 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. And some global sites run the same auction for all their worldwide customers, meaning one wannabe purchaser's nighttime is another's day.
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 iPad too.
Some sites don'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.