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Penny Auctions – A Fancy Term for “Rip-Off”

by on September 5, 2012

Penny Auctions Rip-Off

The bidding for a Panasonic EP1285 massaging lounge chair on Quibids is trapped in a perpetual state of sudden death. With three seconds left on the clock, it looks like user “jazzfanstan” is going to take the chair, which retails for $2,000, for the princely sum of $160.65. Then, just before the final second ticks away, the board lights up again. The bid increases to $160.66. User “lustlicker” is now on top. The clock resets to 10 seconds. Not to be outdone, “jazzfanstan” raises the pot to $160.67. The clock resets again.

Five minutes pass like this. The flashing red numbers continue to find their way back to 10 as the selling price for the massaging lounge chair crawls, cent-by-cent, to $161, $162, and $162.50. It’s a format that seems to defy both tradition and logic – the Neverending Auction. But somewhere far away, a Quibids executive is sitting at his or her computer, watching the prices rise and laughing.

Penny auction sites like Quibids have become quite popular over the past few years as the demand for e-commerce has hit a fever pitch. These companies, which bill themselves as some sort of revolutionary improvement on eBay, walk a fine line between legitimate retail and cup-and-ball hustling. They play the roles of seller and auctioneer in a game of their own design, where top-shelf merchandise is sold at deceptively low prices and bidders are duped into spending hundreds of dollars for a chance at a bargain.

Rather than taking a cut from the sellers like eBay does, penny auctioneers – which include late-night ad celebrities like Dibzees and Beezid – make their money on the bids themselves. Users must pay a fee, usually $1, to bid a penny on a listing. In the end, the winner must pay for the selling price of the item as well as the cost of all of their bids up until that point. So if someone uses 200 bids to win a computer monitor for $100, they’ve really spent $300 at the end of the day. And if someone uses 200 bids and loses the auction – they’re still out $200.

It’s a brutally profitable formula. That massage chair auction we just mentioned has made Quibids over $16,000 so far.

But the deceptive costs aren’t the big reason consumers should avoid penny auctions. It’s the tricks that the auction houses use to keep the bids coming in that make these auctions truly dangerous. Quibids’ perpetually resetting clock is one of the most popular tactics. Another tactic involves using a shill or bot program to deliberately run up the price for an item. In some cases, the bots are programmed to spend until they win the auction. That way, the scam can happen all over again.

To put it bluntly, penny auctions are a gamble – and a dangerous one at that. The entry costs are abnormally high, the odds of winning are unfairly low and in many cases the winners end up getting their “bargain” for a price that’s comparable to what you’ll find at Amazon and other legitimate online retailers. So if you’re thinking about trying your hand at penny auctions, do yourself a favor and think about something else. Don’t end up like “lustlicker” or “jazzfanstan,” who, as this blog is being finalized, are still bidding on the Panasonic lounge chair. It’s currently at $175 and climbing. When the auction finally ends, the winner will be able to boast about his middling bargain. The loser gets nothing but a significantly smaller bank account and a few unpleasant memories.

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