Should Popular Penny Auctions be Unpopular?

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This guest blog was sent into us by David at www.pay-per-bid-online-auctions.blogspot.com.

“Should Popular Penny Auctions be Unpopular?

That’s a strange title and probably deserves an explanation.

Penny auctions and other fee based auctions hold a rather unique place in the world of ‘shopping’. In most shopping situations the more popular a shop is, the greater its purchasing power, and therefore the greater the discount they are able to pass on to the customers.They don’t always do so, but they can and often do.

The rise of the supermarkets is proof (eek, that is too strong a claim I feel) of the general concept of stores buying in bulk and passing some of the discount onto consumers and therefore gaining in popularity and so being able to buy in even greater bulk and so pass on even greater discount and …so it goes on.

You could broadly say that the more popular a store is, the more likely it is to offer larger discounts to its customers. Now enter the different shopping model called…Penny Auctions. Penny Auctions and other pay-per-bid auctions do not set a price like a conventional store does. The price is effectively dictated to the store (auction site) by the level of competition for the particular item on offer (ignoring any reserves that the auction might set). OK, now let’s enter fantasy land for a second. Imagine a fee based auction where you are the only bidder. You place a single bid and the timer gets to zero every time. The items are shipped out to you every time. Ignoring that such a website would probably go bust sooner rather than later, it’d be a cool place to go eh?

Leaving happy-happy land behind (sorry), now imagine a fee based auction where millions of people were present and bidding on every item. With that level of competition, you would have to bid like a crazed power-bidder on steroids who’d just won the lottery to stand any chance of a win.

The second case isn’t so appealing is it? So unlike the regular store, the reverse might be true for fee based auctions, the more popular it is, the less overall discount you can expect? The reality is that it’s not quite as simple as that. The larger auction sites add new items/auctions until there is a balance met between the number of bidders and the number of items (the ‘offering’) such that, in their view, the level of competition is fun, whilst ensuring that they earn a profit. But here’s the deal….at the start of a penny auction site’s life, there are potentially rich pickings to be had. This early launch phase has some potential to be like the fantasy land depicted earlier however is it not a sustainable situation and either the site goes bust or its user base grows.

Assuming the latter, the user base continues to grow without the ‘offering’ increasing until the site is making a profit and only then does it increase its offering inline with its growing user base. With this in mind, should the unpopular auctions sites that have maybe just launched and have not yet reached that ‘balance level’ be…well…popular? Happy bidding bidders!

Check out my other blog posts at www.pay-per-bid-online-auctions.blogspot.com

Important Disclosure – I am involved with a pay-per-bid auction project due for launch in early 2010.  Suggesting people try out smaller sites could be seen as a biased entry…but if that were my intention, I wouldn’t do it this far ahead now would I? :)”

Thanks David, please note: PAW may not hold the same opinions as guest bloggers. If you too would like to be a guest blogger, e-mail us!

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