Online Penny Auction Sites - Legit, Risky or Fraud?
We take a look at the recent Internet craze of online penny auction sites to see if they are legitimate, risky or outright fraud.
How They Work?Online penny auction sites work similar to other auction sites where members bid on a certain item and the last bid wins the item. However, they differ from regular auction sites in that –
- Every time someone bids, the price of the item only goes up a nominal amount, usually a penny, hence the name.
- Members have to pay for their bids, usually between 40pence (60 cents) to £1 ($1.50ish) – this money goes to the site operators. This means that despite the price of the item only going up about a penny, the people bidding are actually paying much more in order to place their bid in the first place. The money bidders spend on bidding is non refundable, even if they do not win the item. So for example if an item was currently being bid on and was currently at £7 (and it started from zero) this means that it has been bid on 700 times and assuming that it cost bidders £1 per bid, the site operators would earn £707 for the item. £700 in bids and £7 in pennies.
Every time someone makes a bid, the countdown timer to when the auction ends goes up a certain amount to allow new bidders time to place counter offers. Most bids will habitually occur when the counter only has a few seconds left, as this tactically the best time to place bids. When the timer does reach zero, the last person to bid will win the item.
Of course the allure of winning an expensive item like a TV or a car for only a small amount is compelling, and seeing these items go for such small amounts appeals many who may not be familiar with the inner workings of these sites, which may explain the surge of popularity online penny auction sites have enjoyed.
However, there are a few things members should be aware of before joining these site.
Its gambling! - Because bidding costs money regardless of whether you win the item, many members will lose money. There are strategies to heighten your chances of winning items but there are no certainties. This means that online penny auction sites are essentially the same thing as gambling, and will come with all the pitfalls of gambling, including the possibility of addiction.
Its unregulated. - Unlike most legitimate gambling sites, these sites operate within loopholes in gambling acts in that they do not need to be regulated. The problem with this is that there is no protocol in place to prevent scammers taking advantage of this vulnerable business model by
- Shill Bidding, which means employing insider bids to make the auction last longer and hence make the site more money. Insider bidders may even win the items meaning the site does not even have to provide anyone with prizes
- Implementing code into the sites which prevents any real members from winning by ignoring bids at a certain time.
Power bidders - an inherent problem with sites like this is the emergence of power bidding, which is best described as a bullish long term strategy employed by serious gamblers. It involves the bidder purposely never losing any bids, regardless of if they end up paying for more than the price of the item (in other words, losing out) Most penny auction sites keep track on members statistics and how many bids members win and lose. Power bidders will obviously show stats of 100% wins (or close). If ordinary members see that they are bidding against a power bidder, they will usually back out knowing that the power bidder is unlikely to back down. This means that in the long term, power bidders will win auctions early on and hence spend little money and maximise their profits.
To summarise, whilst popular online penny auction sites do not constitute scams, they are inherently risky and many argue that just like multi level marketing, these auction sites implement an extremely vulnerable business model that can easily be capitalised by online fraudsters. For this reason, if you do want to join sites like this, we recommend sticking with popular sites that have been operating for a significant amount of time, and avoid newer sites that have little or negative feedback on them. To research a site, you can use search engines like Google or use the WHOIS information on the web domain. Our personal advice is to avoid sites like this, however, atleast until proper regulation can be introduced to prevent fraud.
ThatsNonsense.com
| Jennifer Gilman Says: |
| I have spybots that I cant get rid of through the normal methods. They are matt autofill,daniel autofill warden,autofill sidewiki
translate and autofill asanami. Do you know how I can get rid of them? |
| 05/03/10 |
| Josh Says: |
| Hey ThatsNonsense,
Thanks for your post about penny auctions. I first started bidding on penny auctions about a year ago after receiving free bids for signing up. When I won my first auction using free bids, and the prize came in the mail 3 days later, I started participating on other penny auction websites. Along the way, I discovered some trustworthy penny auction websites, and some scandalous ones as well. This led me to create the Penny Auction List, a carefully-filtered penny auction directory. We only feature websites that are committed to honest business practices. http://pennyauctionlist.com We encourage new penny auction bidders to try sites that have a bid to buy option. This takes the "gambling" out of the equation. If a bidder doesnt win the auction, they can invest the value of their bids towards purchasing the item at retail price. Thanks for your post. Josh |
| 05/04/10 |
| Ulf Wolf Says: |
| Great post.
Perhaps I can just add to this that the best way to guard against being ripped off by online sales or auctions of any kind, Craigslist and eBay included—and whether seller or buyer—is to use a *bona fide* online escrow company. Especially for pricier items like antiques, jewelry and autos. Although it does add some cost, it takes the uncertainty out of the transaction, and that’s a small price to pay for peace of mind. For my money, the best bona fide online escrow (and there seems to be ten fraudulent escrow sites for every bona fide one) is probably Escrow.com (http://escrow.com). In fact, it’s the only one that eBay recommends, and is the only online escrow company that is licensed to provide escrow services all across the United States. Take care, Ulf Wolf |
| 05/05/10 |
| francis w Says: |
| this was a useful article, cheers |
| 08/30/10 |
