subject: Penny Auctions - Not quite the dollar store bargain you are looking for [print this page] Penny Auctions - Not quite the dollar store bargain you are looking for
So, you are tired of looking at the Electronics Store flyer from the local free weekend paper, and have decided to buy that super-cool, high megapixel camera to fix your craving. Do you, a) Drive down to the closest camera store and fork over the 900 bucks? b) Head over to your computer and try your luck on eBay? or c) try those amazing new penny auctions that are popping up faster than weeds on your lawn this past summer?
Well, if you go to the authorized dealers down the street, you will get what you pay for. Assuming you have done your homework and shopped around, you will get a different discount depending on where you go, but for the most part, it won't be far from the msrp. Along with it, you will get a brand new camera with a store and manufacturer's warranty and the peace of mind that normally comes with a face to face transaction.
If you go to ebay or any other "regular" online auction, you will place your bids, and hopefully place the winning bid that you are comfortable with. If you don't have the winning bid, the worst case scenario is that you have to retry bidding on another auction. There's plenty of the same item listed somewhere else. If you are careful about only bidding with reputable sellers (by ranking in sales and happy customers) then you will either win the item of your choice or pay nothing if you don't win. "Nothing" as in not a single penny. Which brings us to the other option. Penny auctions.
With Penny auctions, you sign up with one of the auction outfits, buy yourself a block of bids in hard cash, wait for the item you'd like to bid on, and start placing your bids. Each bid is going to cost you approximately 70 cents, and the item's final price goes up mostly by 2 cents per bid, with the clock resetting every fifteen or twenty seconds. It sounds expensive, but, c'mon, how bad can it be if the past winning auctions list premium digital Cameras selling at $200 to $400 while valued at $1500 to $3000? I'm here to tell you that it IS bad. Good for the Penny Auction owner, but bad for everyone else. I would never recommend penny auctions, not even to those I really really dislike. Why, you ask? I'll tell you why, it's all in the math.
You know what they say about Casinos? That the house always wins? Same deal on both fronts with Penny Auctions. Bidding on Penny Auctions is gambling, and Penny Auction owners always win. I don't care what the Canadian federal, provincial or municipal points of views are, but unless the people in elected office actually take part in the auctions and see it for themselves, they have no idea how many people out there are getting the seriously short end of the stick while they sit and watch, and not regulate that industry in the same way they do the lotteries and other gambling establishments.
Like I said, it's all in the math. While many past auctions will list your $1500 camera of choice as selling at the final price of $200 or so, that is serious cash from the pockets of a whole lotta people (including the one and only winner). Let me explain.
The PBC and BI numbers will vary somewhat from auction to auction, but in general they will be close to above.
Now, keeping those numbers in mind, bidders will place their bids starting at $0.02, with each bid costing each bidder $0.70, but raising the item price by $0.02 cents with each bid. A whole day's worth of bids, each bid's time reset lasting 20 seconds or so, can see the price of the item go up by approximately $90. 20 seconds (sometimes 15 seconds) is the time within which each new bid has to be placed if the auction is to continue. If no new bid is placed within that time, the last bid wins. Bids can be placed manually as single bids, or you can use the famous automatic bidder that will generously keep forking over one bid at a time on your behalf all day and all night (if that is what it takes) while you go about your day or sleep.
1 day = 4320 bids = $86.40 (auction price increment) = $3024 (actual cost of bids placed)
....and so on.
For the Penny Auction owner to sell the $1500 Camera at msrp, the final listed auction item price would have to be at or around $42.85. No more. Everything beyond that is pure, additional profit.
(MSRP / PBC) * BI
(1500 / .70) * .02 = $42.85
What this means, is that the final auction price of $200 for the $1500 camera translates to the Penny Auction owner selling the camera for $7200. The winning bidder is also paying way more than $200 for the most part - upto 4 times as much, in fact. If you learn nothing else, learn that one little fact.
Using the formula to calculate the actual value of bids placed on a $200 winning bid, the math is as follows:
(BI * PBC) / MSRP
(200 * .70) / 1500 = 7000
Between them, all the bidders placed $7000 worth of bids before the auction ended. Even assuming there were 10 very interested bidders and they placed an equal number of bids, the winning bidder needed to have spent $700. That is $700 for a 1 in 10 chance of winning a $1500 camera. Put another way, chances are that each bidder stands to have 9 in 10 chances of losing $700 with nothing to show for it but confirmation of a stirng of placed bids (each costing $0.70). Nowhere will you see this explained clearly enough for you to understand that you are probably making a huge mistake getting involved in penny actions. The odds are so stacked against you that you need to have been born with a horseshoe dangling from your neck to actually hope to win. That, or you have an unlimited amount of cash, which is what you will see some bidders seeming to have. Just saying.
I haven't even talked about how an equal number of bidders using an automatic bidder will see something like bidder 1, bidder 2, bidder 1, bidder 2, bidder 1, bidder 3, bidder 1, bidder 2, bidder 3 ....... and so on. That is far too random a sequence of bids for me to understand, knowing that the auction is running on autobids. While everyone is bidding on autobids, the outcome needs to be exactly 1 in 3 turns each rotation for three remaining bidders. Nothing else. The "explanation" the Penny Auctions try to use makes no sense whatsoever, especially because the rule seems to change while the rotation is in place. No matter. This article assumes that any automation program is fair and square. You will still stand a major chance of losing. Read on.
What tends to happen is that a string of bidders will jump in and out of the auction to try their luck, but the serious bidders who really want the item will tend to be about three or four dedicated bidders who will keep the autobidder on all day and all night tossing in bid after bid, all because the price posted so far is low (comparing $200 to the retail price of $1500). Even assuming that the Penny Auction owner is legitimate and that they are not using automatic bots to shill the auctions, by the time the auction reaches $200, you are looking at over $7000 worth of bids placed. All hard earned and now lost cash for everyone other than the winning bidder. Even if the winner placed one tenth of the bids in that auction, he/she will still need to fork over $700 (in bids placed) plus $200 (the final bid). That is $900 paid to "win" the $1500 Camera listed as ending at $200. There's the math.
Again, not saying that any or all the Penny Auctions are crooked. I am certain that there are some that are, and some that are not. However, legitimate or not, they ALL have the odds very much in their favor to win, and guess who the odds favor to lose?
Now you know. Proceed with caution!
p.s. I logged a complaint againt a Canadian Penny Auction I participated in when it looked like the process was questionable. A string of responses told me nothing. They included statements indicating the person answering my questions only had access to the last 10 bids in an auction that ran for 2 days, with one bid almost every 20 seconds (approximately 8000 bids).
I advised them that I would write and post this article and gave them a chance to read it first.
Here's their response:
From: Bidhere.com (Support staff)
Subject: Auction # 36878
Hello ********,
Thank you for your email.
This concept as you are aware is based on the last bidder. Whether he/she wins with an autobidder or Single bid is irrelevant. You are of course entitled to your option.
We're in business and some people will win, most will lose.
Out of 175 auctions every day, there will be only 175 winners, even if 20,000 bidders participated. Everything is clearly listed on our website, and if someone decides to fork out $700 or $70, it is entirely up to them.
While some items makes profit, some makes loss for us.
You are of course entitled to your opinion and we wish you all the very best.
