Over the past few months we’ve seen many comments in our penny auction forum and on the net from skeptical penny auction users that immediately call a penny auction site a scam just because they see a particular user bid far over the value of an item before they win it. Does this mean that the user is a bot or a shill? Absolutely not. A few penny auction bidders have joined our forum and have asserted that a user must be a shill/fake only to find out that the user who they are accusing of as being a shill bidder was another one of our forum members, someone who has the same bidding strategy across many penny auction sites.
There are two methods to penny auction bidding, we can bid-to-bid or bid-to-win, of course everyone is bidding to win, but we won’t always win. Winning a penny auction item isn’t always easy.
- Bidding to Bid
Bidding to bid, do you bid just to bid? Do you throw a few bids out there and hope you will win? It is likely that you will win a few auctions by doing this and if you watch your spending you may be able to get items at a discount, but you may also be throwing money away.
But are you really throwing away your money? This is entertainment shopping, after all.*
- Bidding to Win
Do you bid to win? Do you consider each bid placed as money spent and want to get the auction item at all costs? Sometimes this could cost a user dearly, depending on how many users are bidding and when everyone stops bidding against you and you win. We really cannot predict when we will win an item, and it’s not always wise to always bid until the end and until you win the item.
Within the past year more and more consumers have become penny auction bidders on the legit, established sites there could be as many as thousands of registered bidders. Penny auction bidders argue that when they bid until they win, each and every time, they are establishing a reputation. Depending on how frequently these users bid, how they bid and if they watch their spending, this may prove profitable or they may also just be throwing their money away.*
We first coined the term “Powerbidder” here a year ago, this is what we call bidders that bid at all costs to win an item, they don’t back down and they make this clear by the way they bid. Powerbidders consider spending over retail on an item to be an investment in the long run, they bid until they win even if they lose money. The more bidders they “wipe out” the more bidders there will be in the future that won’t bid against them. This is pretty much the psychology behind the powerbidder strategy.
In the past we’ve told you about Sunk Cost.
Why do users bid and continue to bid?
“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
Sunk Cost Fallacy: We’re more likely to continue investing in something even after the decision turns out to have been a bad one. In penny auction bidding we continue to bid hoping we win sooner because we have already spent the money and haven’t won yet. Do you look at what you’ve spent and know that you don’t want to walk away empty handed so you spend more? Or do you walk away?
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
Toomas Hinnosaar in his equilibrium analysis of penny auctions, shows that the huge change in prices in penny auctions is in fact implied by fully rational bidders who are not prone to any sunk-cost fallacy.
Bid-to-Buy Penny Auction Sites, Possibly Better for Your Wallet
A more bidder friendly option are penny auctions that provide bid-to-buy. Bid-to-buy provides users with the option of applying already spent bids to receive a refund to purchase the item, this way a user will never have to bid over their specified retail price. We highly recommend penny auction sites that provide this option, especially those that provide a 1-1 ratio on bids spent.
Take this Canon EOS Rebel T1i DSLR on BigDeal for instance, I placed 1 bid on the auction, let’s say I placed enough bids to have been able to purchase the item already, when this happens BigDeal shows you that you have reached a 0% off discount and you can then purchase the item for the full retail price, the auction end price+your bids spent. You may not have spent up to 0% off but as you can see I can purchase the item now for $798.25 because I already spent $0.75, thus I won’t lose the money I sunk into bidding and walk away empty handed, such as the case on penny auction sites that don’t provide this option. However, if I was going to spend the retail price on the camera right now with the auction still going that wouldn’t be as fun as bidding to try to win the camera before I purchase it at retail, sometimes I might get lucky and win the item for less.
How do you bid and what do you think of bid-to-buy penny auctions? Discuss this in our forum!
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