Gambling on Penny Auctions

By Derek Dahlsad
Contributing Writer

Online auction websites Quibids.com and Beezid.com have been airing commercials on cable channels for several months, offering iPads and HDTVs for pennies on the dollar compared to their retail price. These auctions, called “bidding fee auctions” or “penny auctions”, don’t follow the same rules as eBay, or even a friendly neighborhood auctioneer, and that $5 iPad might end up costing the bidder more than they signed up for.

A penny auction website differs from other auctions in that it costs money just to place each bid. Users buy bids in packs at a set price, usually less than a dollar per bid. Auctions begin at one cent, and bidders begin placing the bids they purchased. As the timer counts down to the end of
the auction, each new bid increases the auction’s ending time a few seconds more. This encourages more bids, pushing up the sale price, until all other bidders either run out of bids or give up on winning. That final bidder then wins the auction and gets the laptop or car for the best
price they were willing to pay.

The small increment of each bid does keep the sale price low, but that’s not where the seller makes their money. In order for an item to sell for one dollar, one hundred one-cent bids have to be placed. If each bid cost fifty cents, that’s $50 paid for every dollar of bidding. The seller receives both the bid fees and the sale price, often totalling more than the original retail price.

Unfortunately, every bidder still pays for their bids, even if they do not win the auction. The small bid increments and small cost of each bid may look trivial, but participating in a penny auction may require hundreds of bids before the auction closes. Thrifty shoppers need to calculate the
money spent on all failed bids when figuring if that “deal” is really worth the money spent in acquiring it.

Lawsuits filed earlier this year against penny auction websites, including Quibids and Beezid, claim that penny bid auctions amount to gambling. The amount of money spent on failed bids versus the likelihood of the reward draws a clear parallel to games of chance, but the penny auction industry claims that because there is no luck involved this is simply an innovative sales platform. Other penny-auction websites have also been sued or reported to the Better Business Bureau for more commonplace fraud issues, such as promising ‘free’ features that actually cost money, and credit card charges for purchases not actually made. For the buyer that is ready
to pay the price and take the chance, the similarity to gambling at the casino might be appealing to some shoppers, but for most people these websites are not the cost-saving shopping options that their commercials would have you believe.

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