Not All Penny Auctions Are Scams: Let’s Set the Record Straight

Revisiting this post from 2010! Hope you enjoy. 

(Or at least attempt to!)  Will you win popular electronics and other desirable items for pennies? And will you always win items at 90% off? You really don’t have to read the rest, the short answer is no.

Have you ever come across an ad for a penny auction site, or a news report for that matter, that tells you that you CAN win items for pennies?

Well this is only half true, and people really need to be educated on penny auctions before they risk their money bidding on them! We’re not talking about bidding on the sites that are not scams- the ones that put up items and then interrupt the bidding process by shill bidding, those are the real scams, the other penny auction sites that are not employing autobidders, and are shipping items to users, now those are legit. We will not knowingly place ads here or even “promote” a penny auction site where we think/know they are scamming users.

No one should call the legit penny auctions scams, as not all are scams in the real sense of the word.

scam

noun, verb,scammed, scam·ming. –noun

1. a confidence game or other fraudulent scheme, esp. for making a quick profit; swindle.

–verb (used with object)

2. to cheat or defraud with a scam.

You will see rip off reports and tons f complaints for penny auction sites that you have won items from, and users will even insist that you are a bot.


Yes, you are almost likely to lose money if you try penny auctions, there’s no doubt about that, but when you signed up and hopefully read the rules, after all you did agree to them, you should have known what you were getting into first before you bought bids and even before you make your unfounded chargebacks just because you did not win.

I agree, I too do not like companies/people who are intent on preying on people, or on chumps, as the popular media news outlets have named penny auction bidders.

I do not like it when penny auction sites claim a user won an item for a few pennies or a few dollars when in actuality they did not, yes this may have been the final price but they are also paying-per-bid and everyone that buys bids knows this.

For instance, a penny auction site X says bidder 928 won a great item for $8.91, the item’s retail value is only $100 and the user placed $150 in bids before everyone else stopped bidding and he won. By the time bidder 928 placed $50 in bids he was sweating, nervous but did not want to lose the money he had already invested.

There are no public reports on bidder’s losses, yes these losses translate into profit for penny auction site in most cases.

Why do users bid and continue to bid?

Sunk Cost

“Sunk costs are unrecoverable past expenditures. These should not normally be taken into account when determining whether to continue a project or abandon it, because they cannot be recovered either way. It is a common instinct to count them, however.”-About.com

“Sunk costs greatly affect actors’ decisions, because humans are inherently loss-averse and thus normally act irrationally when making economic decisions.”-Wikipedia

Toomas Hinnosaar has recently updated his equilibrium analysis of penny auctions, he has shown that the huge change in prices is in fact implied by fully rational bidders who are not prone to any sunk-cost fallacy.

It is the sunk nature of penny auction bidding that leads bidder to continue to bid.

“Once you’ve irrevocably paid for something you should take that into account when considering what to do next… The only time you should take into account sunk costs, is when you’re learning from previous mistakes.”-Plonkee

The sunk cost fallacy is what makes penny auctions so addictive.

Mike Gimien for Slate’s The Big Money, on Swoopo:

“The fact that you have already bid 200 times does not mean that your chance of winning on the 201st bid is any higher than it was at the very beginning. A new bidder can come in at any time and at the cost of a mere 60 cents jump into the auction in which you’ve already spent more than 100 bucks. The money you’ve put in has gotten you no closer to the goal than a losing raffle ticket.”

Penny Auction Bidding – Not Everyone Will Win

#1 Message that I would like to impart to you today- Do not bid unless you are willing to lose, but by no means will you always lose.

Like most anything in life, bidding on penny auctions involves risk, but many will argue that there is an element of skill. The truth is there will only be one “winner” on most penny auction items. The rest of the bidders will have lost the money they spent on bids to try and win, bidders are bidding on the chance that they might get that new iMac computer at a discount. On the current and most popularly accepted penny auction model, the sites without bid-to-buy options, and I would encourage that you bid on sites with this option, as you are less apt to lose your money on sites that offer this, there will only be one winner and many losers.

Many penny auction enthusiasts go into the game with the “win some- lose some” attitude, and they would be right to have this attitude because no they do not, and you will not, always win.

Is there one strategy for winning penny auctions?

The skill & strategy part is actually quite simple, you bid until you win, and you continue to bid until you win. However, many other factors need to be considered if you are intending on bidding until you win because you could end up losing a lot of money with this mentality, maybe not now but in the long run.

Real users are winning real items on penny auctions and some are even getting items at a discount.

The ones that are getting the items at a discount are really getting items at a discount, regardless of their penny auction bidding experience.  Again, users that win can either be brand new to penny auctions or seasoned bidders who have learned how to bid on penny auctions and make a profit. Some penny auction bidders have even been able to abandon their jobs and support their families solely by bidding on penny auctions. When we say some we really mean just a few.

War of Attrition

Let’s say there are only two bidders bidding on any one item, both bidders are dead-set on “going the distance,” whatever it takes for them to win the item,  both bidders may have this mentality but only one bidder will win.

“In game theory, the war of attrition is a model of aggression in which two contestants compete for a resource of value V by persisting while constantly accumulating costs over the time t that the contest lasts.”-Wikipedia

“There are some special cases, where penny auction is a version of well-known auctions. In two-player case the penny auction is similar to war of attrition, since the game continues only of both players continue being active in bidding and therefore incur costs. When bid cost converges zero, penny auction is converging to a dynamic first price auction.”-Penny Auctions, Toomas Hinnosaar 1/26/10

Just because you lost in penny auction bidding does not mean you were bidding against a bot, just that another user was willing to spend more money or wanted the item more than you.

Penny auctions likened to gambling?

ebay slot machine

“Tony Northcott of the Trading Standards Institute believes some people may spend more than they realise on bids.

“My concern about these online penny auction sites is that people will bid for goods and not realise at the end of the day they may spend quite a large amount of money,” he said.

The Gambling Commission said it could not comment on individual sites and was not convinced that penny auctions amounted to gambling.”-Penny web auctions under scrutiny, The BBC

And yes, like a gambling addiction users may acquire an addiction to penny auctions, they may not know how to control themselves and they may end up racking up credit card bills without even realizing it.

Don’t spend more money on bids than you can stand to lose! Even on legit sites you may not win an item with the bids you’ve bought, count the costs and watch your opponents. Keep a spreadsheet on Excel, or even just in a notebook, with the amount of money you have spent and the items you have won so you don’t get carried away!

Psychologist Stewart Beasley to News9 Oklahoma City, on QuiBids/penny auctions:

“Anything can be adrenaline producing, even this bidding could be addictive for people who get caught up,” Beasley said. “People will buy things they don’t need because it’s so cheap. It becomes a rush and a contest.”

Penny auction bidders need to keep track of their spending and exercise self-control.

There is much controversy surrounding online penny auctions.  You will see that all over the Internet legitimate penny auction sites are being called scams; either by competitors, by a less-than-honest penny auction site owner who has been exposed here, or by real bidders. Legitimate penny auction sites are those that are really shipping items to users, and are not employing bots to autobid to make a certain % of profit. The sites that are employing autobidders to shill bid, the developers that are selling and building scripts to shill bid, now those are the real scams. Not everyone who bids on penny auctions, even on the legit auctions with real users and no shills, will win. And finally, penny auctions, like gambling can lead to an addiction, control your spending and get help if you need it.

Join our forum (http://pennyauctionwatch.com/forum) and ask questions about penny auctions and help us to determine what sites are safe to bid on and what sites are questionable.

Photo Credits:

Scam: http://www.flickr.com/photos/joelogon/ / CC BY-SA 2.0, Sinking ship: http://www.flickr.com/photos/x-ray_delta_one/ / CC BY-SA 2.0, Michael Phelps http://www.flickr.com/photos/joemad/ / CC BY 2.0, Gambling http://www.flickr.com/photos/waldoj/ / CC BY-SA 2.0

Related Posts with Thumbnails

16 comments… add one

  1. togafoot

    Escalation of commitment along with sunk cost fallacy are the key psychological factors that affect hardcore PA users. I think i mentioned this already in the forums :)

  2. Alan

    Great article! Well written and very true! I am impressed PAW.

  3. auctionwatcher

    Thank you, I appreciate it.

  4. auctionwatcher

    Digg it? ;)

  5. auctionwatcher

    Good comment :)

  6. dzignr_tastz

    Definitely a good article.

    However, I think that simply limiting “scams” to those sites that use autobidders, “bots”, and random algorithms built into the software to shill bid against customers while stating that any site that ships products is not a scam is a little narrow-minded (and misleading)… for if you really think about it, there are any of a number of ways to maximize profits and minimize losses while still delivering items and making it look completely legitimate.

    The fact of the matter is, people learn; people adapt. For every scam you expose, people will come up with a new way to cheat people, and a new site to do it on. You call someone on something, they’ll change the way they do it. I’ve seen it happen more than once. So have you.

    That being said, I have won and received items from 100% verified scams and have had tons of issues with “legitimate” sites (some of which you openly promote here). That being noted, MY best advice – to EVERYONE – would be trust your gut, and if something just doesn’t seem right… it usually isn’t.

  7. bakee66

    This site is a wolf in sheep's clothing. While it is decrying the so-called scam auction sites it claims its advertisers do not run scam sites…how clever. You think you have found an authority to lead you through the jungle of penny auctions while you are actually be scammed into participating in the site's chosen scams. Who is profiting here? Be a thinking person. Do not fall for this propaganda.

  8. This probably won't be posted, but LOL @bakee66 , I agree

  9. Relentless

    It seems to me that by the time one develops the skills, one will have far exceeded the need all the winnings. So where is the motivation? What am I missing here. More cowbell please I gotta feava.

  10. Excellent article PAW!

    This is precisely the reason we created SmartBid – Here every bid you make actually increases your chance of winning unlike Swoopo style auctions where a new jumper can come in any time and all your previous investment makes no bearing on the outcome of the auction.

    We highly suggest to read through our bid limited strategy based auctions to see how we are different than most of the penny auctions and how your investment really counts here! If you play it right with proper strategy, your investment will have a guaranteed result – our winners will vouch for it. We have probably the highest return users among the existing penny auctions site and this is no coincidence. Good luck to all PAW members.

  11. Has anyone know of this website and is it a scam? Thankyou

    1. jack

      Me i have try oopa.ca penny auction….. no lost time and your money there, it a real scam, counter block at zero second for a while then you can t win the auction, same as we email them for complaint, they never reply to our email, and if you get angry… they close your account whitout refund your credit you have buy…
      I think police need chck this king of website and punish the owner.

  12. I think there are many scam sites out there, but I know one that isn’t. I have found AreaBids to be a honest, reliable, and fair penny action for gift cards. I have been bidding there since Feb. and found they are always changing to make bidding fair and when you win you get the gift card the next day.

  13. ZERO STARS. Suprised re good reviews. I won. Said they accept credit cards tried six major ones and though not declined they direected me to a payment site. Wasted hours bidding and trying to contact them w contact page. NEVER got to back to me. NO contact number. NO HELP AT ALL.

    FRAUDS. Even if you win you can’t pay and they don’t get back to you (it has been ONE MONTH)

    WORST SITE IN HISTORY. Don’t waste your money or time.

  14. These guys just launched and they may have changed the entire penny auction marketplace.

    This is what their About Us says:

    Why Crush The Bid?

    We named the site Crush The Bid because here, You’ll be playing in a “real” penny auction site that was designed to be fairer, more cost effective, more exciting and more consumer-centric.

    Let’s start with what you “won’t see” on Crush The Bid (CTB):

    * No Bots: CTB does not employ, use or allow any automated or robotic bidding;

    * No Reserve Pricing: Auctions start at $0.00 and wherever an auction ends is where it ends. Even if it’s only $.01 (1 penny);

    * No Snipers: Auctions are “locked” from the start with a maximum amount of players. You’re in or You’re out right from the start;

    * No Shills: CTB does not employ any person or mechanism to bid against players. Every player in an auction is an independent participant;

    * No Manipulation: Since there are no bots, no reserve pricing, no snipers and no shills, there isn’t any pre-conceived, planned or controlled manipulation;

    * No Bid Fatigue: Unless otherwise noted, all auctions last only 5 minutes, so You’re not sitting there hour-after-hour staring at an auction that doesn’t end for you until You’ve run out of money or are completely exhausted.

    Here is what You will find on Crush The Bid:

    * Actual Penny Bids: That’s right, each bid on CTB is only $.01 (1 penny) so when you bid a penny it’s really a penny;

    * Max Players: Each auction has a maximum number of players that can play so You know “before” the auction starts how many players You are up against;

    * Player Identifier: Using Crush Live let’s You see every player’s location and unique screen name so You know who You’re playing against;

    * Flash Auctions: Unless otherwise noted, our auctions are short so You won’t experience long bouts of bid fatigue and You’ll be able to focus more on strategy rather than trying to stay awake or walking away from an auction in the middle and missing You’re buy opportunity;

    * Cash Redemption: If it’s more convenient, You can immediately redeem You’re Won Auction Items for cash right back into You’re Crush account so You can get back into playing, not waiting.

    * Loser Refunds: Although the Seat Bids (the entrance fee) are non-refundable, after every auction, if you did not win, check your account…You’ll see a refund of the Auction Bids that You used during the auction.

    Stay tuned for more exciting upgrades and features.

    It’s our goal at Crush The Bid to provide You with the best Penny Auction experience possible. We pledge to always try our best to maintain the standards You expect and demand. If there is something we can do to better the experience, please let us know and we promise, we’ll give it every consideration.

    We sincerely thank You for Your patronage.

    1. Amanda Lee

      Oh yea? Have you bid there are you the company posting this on every blog post I create? Just wondering!!!

Leave a Comment