So what exactly is a penny auction? A penny auction is in most cases a website which lists items up for auction. But what differs a penny auction from a regular auction is the fact that all the items will start at $0.01 and the price will go up by one penny every time somebody places a bid, hence the name penny auctions. The catch is that each bid won’t just cost the bidder one penny, it will usually cost significantly more such as $0.60 in most cases, we will move on that later.
Here is what Wikipedia says about Bidding Fee Auctions.
A bidding fee auction, also called a penny auction, is a type of all-pay auction in which all participants must pay a non-refundable fee to place each small incremental bid. The auction ends after a period of time, typically ten to twenty seconds, without new bids; the last participant to have placed a bid wins the item and also pays the final bid price, which may be significantly lower than the retail price of the item. The auctioneer makes money in two ways: the fees for each bid and the payment for the winning bid, totalling typically significantly more than the value of the item. Such auctions are typically held over the Internet, rather than in person.
Participants pay a non-refundable fee to purchase bids. Each of the bids increases the price of the item by a small amount, such as one penny (0.01 USD, 1¢, or 0.01 GBP, 1p; hence the name of the auction), and extends the time of the auction by a few seconds. Bid prices vary by site and quantity purchased at a time, but generally cost 10–150 times the price of the bidding increment. The auctioneer receives the money paid for each bid, plus the final price of the item.
For example, if an item worth 1,000 currency units (dollars, euros, etc.) sells at a final price of 60, and a bid costing 1 raises the price of the item by 0.01, the auctioneer receives 6,000 for the 6,000 bids and 60 as the final price, a total of 6,060, a profit of 5,060. If the winning bidder used 150 bids in the process, they would have paid 150 for the bids plus 60 for the final price, a total of 210 and a saving of 790. All the other, losing, bidders collectively paid 5,850 and received nothing.
How Penny Auctions Work
Each time you make a bid, it costs you roughly between 50 cents and a dollar. Imagine if you went to a live auction and every time you raised your paddle you had to pay a buck. But this is an auction house with an unlimited amount of bidders.
To sign up, you have to buy bid packs. The more you buy at a time, the lower per-bid price you pay. On Beezid, for example, you can buy a pack of 30 bids for $27 (which works out to 90 cents per bid) all the way up to 1000 bids for $550 (.55/bid). Then you find an item you want to bid on, and start bidding. Each time you bid, it raises the price of the item by one cent and often resets a timer for another 10 seconds or so of open bidding. Bidding can be done manually, or you can set up auto-bidding, which will program the site to bid for you, usually at the last second.
Penny auctions’ come in many varieties and are an online shopping method where players pay a small non-refundable fee each time they place a bid on an item. Penny auctions are therefore not like standard auctions where you pay nothing if your bid is unsuccessful.
Most often, people compete with other bidders to place the highest bid for an item before a clock counts down. In other games, players compete to place bids according to sometimes complex rules, for example vying to place the lowest unique bid, bids equal to those of other consumers, or bids satisfying other requirements.
The most important thing to remember is how bid costs can escalate as it is easy to forget what you have already paid before you win the right to buy an item at its offer price. For example, a camera may be won at an offer price of £50 but at the expense of two hundred £1 bids, so it may well come in more expensive than if it had been bought in a shop. Some sites also add postage fees, registration fees and other costs.
So it’s clear that penny auctions aren’t as easy to win as you might think, these penny auction sites will use ads that will make you think that you can win high priced items for a fraction of their retail value but in most cases this won’t happen. There is a certain degree of luck when it comes to penny auctions and this can not be overlooked.
Penny auctions really took off back in 2009 when the amount of registered online penny auctions literally exploded. Many of those sites have now gone bankrupt, because not only the bidder is taking the risks but so too are the sites that hosts the auctions. The biggest example was Swoopo, the first penny auction of its kind:
The site that put the concept of pay-per-bid auctions on the map is now apparently in financial trouble, Technologizer has learned. Although the company’s front page claims “technical issues,” documents from a Munich, Germany bankruptcy court indicate its parent company — Shopping Entertainment AG — filed for bankruptcy protection on Wednesday.The company is asking for protections from its debtors, and it has named a liquidator to start divesting its assets.
The company is asking for protections from its debtors, and it has named a liquidator to start divesting its assets.
So by no means are these penny auction sites making a fortune, in some cases they will do, but that is just the name of the game.
Here are 5 basic steps that will explain how you would use a penny auction site:
- Find a penny auction site that you like.
- Sign up and learn exactly how the penny auction works
- Either buy a bid pack or use free bids.
- Choose an item that you want and start bidding!
- If you have won then you can using multiple different payment gateways.
The main point to take out of this article is that penny auctions are legit sites, they are not scams. However, there is a certain degree of risk involved and you will need to seriously take this into consideration before signing up to a penny auction site.