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The Savvy Online Consumer

Penny Auctions Further Explained

By Rich Johnson on September 16th, 2010 • 34 comments

A penny auction is a special kind of online auction that allows sellers of expensive items to offer them for pennies on the dollar and still make a profit. Imagine the opportunity to buy a guitar worth thousands of dollars for under 20 bucks, a new digital camera for under $5.00, or a used car for $15.00. Penny auction fanatics claim that such deals are not just possible, but plentiful and commonplace on the many auction websites they use to find their next big steal. Promises like these often shock and bewilder newcomers, their brains struggling to find reasons not to start placing bids. As a result, penny auctions are a polarizing phenomenon – people either love them or think they’re just the latest online scam. Today we will explore the world of penny auctions in an attempt to uncover the truth – Are these “too good to be true” prices are the real deal, or nothing more than a fool’s gamble?

How Does a Penny Auction Work?

(source)

A quick visit to popular penny auction website Swoopo displays big screen televisions, video game systems, even solid bars of silver and platinum, all listed for prices ranging from a few cents to around $100.00. As you gaze upon these gleaming new electronics being sold for such paltry sums, it can be hard to resist leaping out of your seat and wildly grabbing for your credit card. But how is it possible for anyone to take such a monstrous loss on the sale of auction items and still remain in business?

The key is that penny auctions charge bidders every time they place a bid. These charges generally cost between $0.50 – $1.00 per bid, and are paid straight to the auctioneer for the simple privilege of bidding on the item. In this way, the real money is made on the bids, not on the eventual price of the item. Even though the actual bid might only be for a cent, the seller makes significantly more with the fee included.

Who Benefits From Penny Auctions ?

In theory, both the seller and one bidder could benefit equally from a penny auction. Because the bidder only bids $0.01, but is charged a bidding fee each time, the end result should be a low purchasing cost for the buyer, and a high earning for the seller. To illustrate this concept, lets say you list a used car for a starting bid of $0.01 and charge $1.00 per bid. If you can attract 1,000 bidders, and each one bids about 10 times, you just made $10,000 and the winning bidder won a car for around $100.00 (although the other 999 bidders would have lost the money they paid for their bids).

This is how the idealized penny auction works. Unfortunately, there are more than a few dangers to look out for that can make these gambles a dangerous game.

Bidding Bots

(source)

With so many penny auction websites vying for your business, it can be hard to tell which ones, if any, to trust. A serious form of fraud that can have you spending far more than you expected is known as a bid bot. Bid bots are computer programs disguised as a human bidders that automatically bid on behalf of the website. You may be seconds away from winning an auction when all of a sudden another user places a bid, keeping the clock going and forcing you to enter a bid war with him in order to stay in first place. Though the bidder appears to be just another a human user, it may actually be a bot programmed by the website to extend the length of the auction and force people to keep bidding (and spending money) if they want to win. For a user it is very difficult to tell if a Penny Auction site is using a bid bot or employing another type of shill bidder. We’ve seen numerous bot reports on sites like Quibids, Beezid and Swipebids.

Non-Delivery Of Winnings

(source)

Building a basic penny auction website is not difficult, making it simple for new websites to spring up and try to make a fortune with this business model. Unfortunately, new website rarely attract huge numbers of users right out of the gate. What can sometimes happen on a new penny auction site is that only a few people will lackadaisically bid on an item or two, and without much competition, will win an extremely expensive item for a few dollars. After a week or two of this, the new website, which is often ran by a part-time entrepreneur in their spare time, suddenly owes 50 people big screen plasma televisions and has barely made enough money to cover a single one. Not surprisingly, these websites quickly close up shop and disappear, and winners never see their prizes.

Tips to Stay Safe from Bad Penny Auctions

(source)

With so many warnings about penny auctions and the possibility of getting ripped-off, it is important to keep in mind these tips to avoid getting scammed:

  • Perform a gut-check–if a penny auction site, or any other site is offering deals too good to be true, they probably are, and you should stay clear.
  • Do your research before using any penny auction site and read the experiences of other consumers (SiteJabber is good place to start).
  • Beware of fake penny auction review sites–many of the blogs and other sites dedicated to providing “information” on penny auctions are in fact making money by referring customers to the penny auction sites themselves and cannot be relied upon.
  • If you choose to use a penny auction site be prepared to gamble away your money, just as you might on a trip to the slot machines in Las Vegas (except these slot machines don’t even have the courtesy to list their odds). And keep track of how much you have spent on bidding and make sure you don’t come too close to the actual price of the item. Some bidding wars get heated and it can be hard to give up once you have been going back and forth. Keep in mind that if you spend more than the price of the item, you aren’t getting a deal at all.

For more information on penny auctions visit our infographic detailing how they work.


Comments

34 Responses to “Penny Auctions Further Explained”
  1. Penny Auctions says:

    This article does a good job of explaining the pros and cons of penny auctions. Because this is a booming industry, you always have individuals who look to get an edge in unethical ways.

    After encountering some shady penny auction websites, I founded the Penny Auction List. I work with penny auction bidders to maintain a carefully-filtered penny auction directory. Only sites that meet a strict set of criteria get to be featured.

    As SiteJabber references…do your research first before bidding.

  2. Liberty says:

    This underplays the downside of penny auctions. For swoopo, “bids” cost $0.60, and that lets the player move the sales price up by one penny. I have seen an iPad close at $73. To get to that price, 7300 penny bids were made. The “winning” player as reported by swoopo broke even. He paid retail price when you add bid costs to sale cost. All the other participants did far worse. 7300 times 60 cents is $4380. That is a substantial markup on a $800 iPad.

    Play an illegal numbers racket instead. They only take 20%-40%, not 80%.

  3. Anthony says:

    Hi,

    I am glad that the blog owner has chosen a very interesting matter about penny auctions. Penny auctions a new method of purchasing products at a fraction of the price. The information on this blog is very helpful in that it helps by spreading a great deal of knowledge among people. I would like to congratulate for this hard work to the blog owner and would like to be part of this site by submitting comments.

  4. Kate Dawson says:

    Just wondering if anybody has used or know anything about Pennypavilion.com. Seems to be a new penny auction. Should I or shouldn’t I?

  5. Alex says:

    pennypavilion…I would avoid it. I would avoid almost all of these penny auction sites until they become regulated and audited by a third party company or the government. How can you really trust them?

  6. GiGi says:

    Came across these Auctions and your very very informative report was absolutely riviting as one does not know what it entailed. Thanks GiGi

  7. Victoria Jones says:

    BEWARE~~~~~~~~~~SCAM~~~~~~~~~~~CALL YOUR BANK AND HAVE THE PAYMENT FLAGGED AS FRAUD. The bank will then investigate.

    I am a Licensed Private Investigator and am working to have this site SHUT DOWN

    BEWARE~~~~DO NOT USE QuiBids~~~~SCAM~~~~~SCAM ALERT

    • Med says:

      beware !! Usng quibids is SCAM!!!
      Dont let them fool you!!

    • Damian says:

      What’s wrong with people?? ALL THESE PENNY AUCTIONS ARE NOTHING BUT A SCAMM!! THEY ALL USE BID BOTS. DONT SAY THEY DONT. ANY POST HERE SAYING ANY OF YHESR SITES ARE THE REAL DEAL ARE SCAMMERS THEMSELVES !! THEY ATE RINNING PENNY AUCTIONS
      THERE ALL COMPLETE BULSHIT. OF CPURSE UPU WILL WIN ONCE THE BID BOTS BIT THE ITEM OVER AND OVER INTIL THE $20 ITEM HAS EARNED $1000 OR SO IN OAID PENNY CREDITS.
      PEOPLE WAKE UP! Wtf is wrong with people?
      ANY ONE WHO SAYS ANY PENNY AUCTION IS LEGIT NEEDS THERE HEADS EXAMINED!!!! Nuff said!!

  8. Larry anderson says:

    In regards to some of your posts BIDDING BOTS. I am in the process of opening a penny auction and have done a lot of research on bots. The bidders are always worried about be robbed by bid bots. Lets look at this from the site owners side of the fence. If you have cheap junk on your site so that you could afford to take a loss user would back off your site because who wants to bid on junk. So your site never takes of. So we now know that we need big ticket items on the site. So just like sites are scam artist how about the bid sharks? these sharks cruise new sites with no traffic and try to steal product for pennies forcing the site to close down . now is that fair to the site owner? Ok so lets take a close look at the whole reason behind this penny auction stuff. Sellers can sell product and make nice profits bidders can get a product at a fraction of the retail price. And Remember when you go crazy over your big win someone else is punching the walls over there loss. Thats right in order for someone to win someone has to loose. Now comes the bots If I offer a $100.00 home depot card and it sells for 1 bid I’m in real trouble, multiple this thousands of times a month and even Bill Gates would be ruined. So If bots bid to get the card to the $100.00 mark how is anybody getting hurt? I don’t loss and someone still gets the card at a dirt cheap price. When bots bid over the amount then thats a no no. So I would like to know how this is unfair? And as I said for every winner theres losers too. This is how you can protect yourself: New sites are not all Scam artist Start with small products and see if they arive, If they do slowly work your bids to gain trust. And the number 1 problem is Hey I had the last bid and did’t win. Remember you are on the internet your connection speed and your browser could be causing you to lose to avoid this do not bid when clock is below the 5 second mark. You may think that you hit the bid button last, but the sites servers see it a different way. Remember you are bidding If you want to bid and be safe go to eBay. For every winner in life theres a thousand losers

    • cody says:

      let me know when you open that up so i can get you shut down. As a penny auction owner, you should lose some money on some auctions. A lot of sites dont have bots. I hope you dont go through with this, or do the right thing and dont use bots. Pathetic. Making the penny auction site business look terrible

    • Pen says:

      Shame on you. Bid bots make every bidder on the item a loser including the winner. Bid bots make the whole site a lie! Your worse than the casinos and corporations sticking it everyone. You should be ashame.

      Ebay has the option to set a limit on the sale, that’s fair no one is taken advantage of Even on Storage Wars bidders know when to stop, boy but in a bid bot and the storage place would never lose.

      Your invisible to the bidders hold no moral code or ethics. Put your picture on your site and answer your customer service phone yourself, then maybe you’ll feel the joy you spread.

      Obviously, your interested in draining every penny out of the site. You need to advertise that, Bidbots employed to help you pay the most!!!!

    • Allison says:

      Using bid bots is essentially fraud. In starting your penny auction site, are you making your bidders explicitly aware that they are competing with bots??!! By explicitly, I mean do you have this information presented in a way that people read it, and not buried in the fine print? Doubtful. Further, I understand what you are saying about supposed sharks, however, like many businesses, you lose money before you make money. You should expect items to sell for less than you paid for them, initially. As your site generates creditability and your membership/bidder base grows, items will sell for more than you paid and profitability will increase. Get a clue. This is commonsense. Don’t try to legitimize the use of bid bots.

    • Jennifer says:

      Holy cow! I hope your criminal butt never started this site. You need to just take yourself to your local police department & tell them you have a gun & are going to shoot!

      What am I saying? You must be in prison by now. You obviously don’t want to live like a non thieving human being so you should be in prison at this point. Too bad you’re too much of a chicken to come back here!

  9. TJR says:

    Larry Anderson… You stink…. I hope you post your website when it opens so we can all stay away!

    I do my research and I NEVER bid on a site that uses BOTS / SHILL BIDDERS.

    People listen up.. There are many good sites out there that DO NOT use bots or shill bidders because I bid on those sites and I do win some great deals. At the same time there are horrible people out there like this Larry Anderson who likes to RIP people off for a fast buck.

    Do your research and watch sites before you invest in going for that great deal and savings. Research the company behind the auction site first. Is it a Fortune 500 company or a fly by night express startup?

    I only play with the BIG BOYS… and you should too…

    Investigate before you play and you can’t go wrong. Yes I’ve been taken but it only made me wiser and do more research. I now have a select few AWESOME sites I bid on everyday…. Sometimes I come out on TOP big time and other times I just break even…

    There are good sites out there just do your homework…

    Hope this has helped someone else whom think all these sites are a scam because they are not you just have to find the diamonds and I have found a few of those through hard work and determination.

    YES I have won and you can too…. it also takes a lot of patience..

    TJR

  10. pappy says:

    If you are in dire need for SEX these sites are the place to go

  11. Steve says:

    Yes, this person has no conscience, heart or soul to think that running a so-called “penny” auction site and setting prices with non-human entities is not even ethical.

    ANYONE can do one of these things with a simple purchase of SWOOPO clone or other such software [http://www.download25.com/swoopo-clone-script-download.html]

    One definitely needs to avoid sites like Bidcactus, Quibids, Madbids, and any or all of these type of “penny” auction sites.

    I would also advise anyone that has been taken to E-mail me as I am initiating class-action, write your local state’s Attorney General, notify the local FBI, and contact your state’s politicians so as to get legislation to make any/all of these such sites illegal to operate in U.S.A.

    Wishing all good health, long life & happiness this holiday season the years coming!

    //ijusthuman

  12. Fred says:

    People listen up.. There are many good sites out there that DO NOT use bots or shill bidders because I bid on those sites and I do win some great deals. At the same time there are horrible people out there like this Larry Anderson who likes to RIP people off for a fast buck. Google how2pennyauction and read there.

  13. stephen says:

    Hi this a deceiving way of making money for the owner of the WEB SITE every time you bid you have lost your money even when you dont get the item you are bidding on. The winners are the seller and even more money goes to the owner of the site ( EVERY LOST BID ) in there POCKET.

  14. Cheryl says:

    My advice is “stay away”! Why take your chances? It is gambling. I had a windfall of money and was laid up on disability. I guess I went crazy from boredom. I lost so much money on Penny Auctions I could kick myself. Sure, I won too, but overall -I lost. It is addictive. The sites are tricky and untrustworthy.

    I will try to direct readers to this site so that I can educate people into not making the mistakes that I made! This should be illegal!!!

  15. kyle says:

    I cant believe anyone even has to think twice about these penny auctions. Should i? or??? Your kidding right? They are all scams . Dont tell me there is one site thats ligit and honestly not using bots or softwhere bidding against the real people bidding. They dont have any product to ship anyways. I could easily start up a site like that from home , sit back and let it make me ritch but i better get on it quick b4 these sites are closed down .
    I remember when ebay was hot and it was run like a real auction site. My mom bought and sold on there and had many programs that helped her with organizing her auctions as well as placing bids on items automaticlly at the last min. I didnt understand how it all worked myself at the time but i guess its the same as these penny auction bid bots driving the bids up. The erve of this larry anderson here ~!~! Whats wrong with bots he asks ? what about the site owner? he cant loose , so a bot getting bids up to cover his costs should be totally ok?> Does this larry guy actually believe thats fair ? what a moron ~! I hope he has been back to read the comments after his pathetic comments.
    Never think should i take part in ANY of these sites. There all scamms. Im thinking now that ebay back in the day was more then likley a scamm , using bots on items driving up prices so they can get a bigger percentage . The only diff there is , a real person does get the item , the seller gets his money and ships his item but ebay has just made a few xtra % points. You never know . Easier way to run legit and get away with it. hummmmm .
    Hope you end up investing major $$$$ in your penny site Mr. LARRY and loosing LARGE $$$$$ Cheers all , from Canada

  16. Yoli says:

    The logistics of penny auctions simply do not work without bots. Every penny auction site that is still in existence has bots! Without bots, they will all go out of business. The fraud is that they all report they have a “fair bidding policy.”

  17. Mark says:

    Most people seem to overlook the gambling (and it’s addiction) involved with these sites. On regular bidding sites (e.g. ebay.com), what you pay is what they earn. On penny-auction sites, you have to pay whether you win or not. The winner gets something, the seller gets something, and most of the bidders (i.e. you) get to pay for the winner and seller. It’s like a poker game where you have to put something in the pot everytime or fold. The winner is getting something they did not earn, the seller is making his profit and the rest of you suckers are getting ripped off. Still, if you like to gamble, have fun!

  18. Connie says:

    As we all know…Ebay is quite different from a penny auction site. You only pay for the item if you are to receive it. I am understanding that with some of the penny auction site…you have to pay , just to bid…how unfair is that?

  19. cody says:

    You guys need to do research. I am an 18 year old and a very young man who is always looking for a way to make money. I do not want to cheat my way to make money though. I use some penny auction sites and some are legit some arent. I made $500 pure profit last month off one site alone. And no its not a scam. You need to do research. The site still can make money off someone getting a great deal.

    Lets say your on a penny auction site, just an example, that allows you to input 200 bids and you bought these bids for lets just say 100$. You input those 200 bids into a 100$ gift card auction the site will still give it to you for free. So you didnt lose anything and the site still made money off of you. I recently did a college paper on penny auctions and got a 92% on it. These sites are real people.

  20. Med says:

    Quibids is a big scam!!

  21. Debbie says:

    I don’t know if they have bid bots or not. But I have won some stuff that was a good deal, calculating the cost of the bids and the end price, still a good deal. But when the item doesn’t show up, and the auction site doesn’t respond to email that’s when the scam really begins, for me anyway. Yeah I can get the end price refunded if I paid through Paypal, but the cost of the bids used to win the item, will not be refunded. So dealdash still wins. They give you your couple bucks back you paid for the win, but keep the money you paid for the bids. They look clean as a whistle to the credit card company, after all you were supposedly refunded. No harm no foul. Except the cost of the bids you used far exceeded the end price of the auction. Not Cool.

  22. Ricky Fowler says:

    Thanks for explaining in detail about the working of a penny auction. It will help users understand the auction process and win good discounts on a variety of items.

  23. Penny Lover says:

    People are so foolish..not for participating in penny auction sites, but for casting foolish opinions without any knowledge of what they are saying or ownership of their actions.

    Quibids, nor any other auction, forces one to participate. That is a choice that each individual makes. Why? Usually, because they are wanting a “deal” or something for nothing. So who is scamming whom? Also, too many people compare these penny auction sites to ebay when their business models are grossly different.

    If one does his research, is bidding pennies on an item he/ she is willing and wanting to buy, instead trying to “steal” it, then nobody is scammed or ripped off as so many people state.

    For example, I like QuiBids and a few others. So if I decide I want to buy a new TV, I do my research comparing prices at various electronics stores. Now, I have a choice to make: I can walk into that store and pay full retail price, or I can “choose” to buy bids and try to win it at a much cheaper price. That is a choice that I make for myself…not one the penny site makes for me.

    If I am committed to winning that TV, I am going to win it. If I spend hundreds of dollars on bids, plus have to pay the final sale price, both of which must be considered when calculating the true cost of the item, and my final price is less than that of the store, how did I get scammed? If the people competing against me in the auction gave up bidding, and did not use the Buy It Now feature which allows you to purchase the TV for retail price with your investment being applied towards that price, how did they get scammed? It was a choice they made to walk away. If they walked away, then they were not prepared to buy that TV and did not really want it. They wanted a “good deal” instead..something for nothing.

    That is the problem with blogs such as these and the comments that follow. People do not look at the whole picture, the total investment. They think they are getting something for nothing, and when the clock starts over, they think they got scammed. If you bid on something that you are not willing to buy, you ripped yourself off in hopes of getting a “good deal”. If you spend money on the bids and then walk away after someone else wins, instead of using the Buy It Now, you ripped yourself off.

    These are choices that individuals make for themselves. Some sites, such QuiBids, have blocks in place so that you have to stop bidding once you meet the retail price – their Buy It Now price. They are looking out for those who cannot look out for themselves. Yet, this feature is NEVER mentioned in these web reviews.

    I would imagine that the group of people who complain, cry scam, etc, about these penny auctions are also the same people who want to know how much a car dealership will give them for their trade, which is a majority of our population. They think the trade-in value contributes to the “deal” they are envisioning on the new car, but it isn’t. The reality of it is that it doesn’t matter what you receive for your old car trade. All that matters is the trade difference.

    People need to become educated, experienced, and accountable in life’s adventures, risks, and pleasures in which they partake, or do not partake. Hold yourself accountable for your own decisions, and if you don’t understand something, then do not be involved in it. One’s lack of knowledge does not constitute slandering any other organization or individual.

    In a few days, I will be enjoying my new $345 pistol I won on a penny auction site. I paid $4.99 plus $10 shipping according to the invoice. But, I am smart enough to know that I also paid $85 in bids and must consider that as part of my expenses. Did I get ripped off? I don’t think so. I knew the value of the firearm before the auction began (because I did my due diligence) and I knew I was going to buy it if I didn’t win it with the money I had invested in bids. As it worked out, I won it and saved $245.

    Did the person who was bidding against me get scammed? If he didn’t buy it afterwards, yes, he scammed himself.

    • Jennifer says:

      So its for sites to use bid bots to intentionally make the winner pay retail value as well as make all the losers pay retail value for the item they’re trying to win? How would you feel if you paid retail for that gun that you really need to stick you know where? You failed to see the point in this and your argument became invalid because you failed to recognize that there are rip off sites.

      You have far too much anger to make you believable so what I think is that you work for Quibids!

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