Pay per bid auction sites seem like a very lucrative business. The companies running the auction receives income both in the form of the fees collected for each bid, and in the form of payment for the winning bid. When looking at certain items, it may seem that these auctions are making large profits. However, such sites also consistently lose money on some auctions. New pay per bid auctions keep opening all the time, but most of them close shortly. Users are more likely to get good deals on newly opened sites, as there is not too much competition from other bidders and auctions tend not to last as long as on mature sites. If a pay per bid auction sites does not attract enough bidders, it sells many items at a loss.

How it works

In the typical case, players are asked to pay a non-refundable fee each time to purchase "bids." These "bids" can then be spent on "auctions." The act of spending a "bid" on an "auction" raises the cost of the item by a fixed amount. Additionally, the act of spending a "bid" on an "auction" typically also extends the deadline of the "auction," providing an opportunity for a competing player to place another "bid", thus extending the "auction" again. The game is a brinksmanship game: each successive "bid" lowers the value of the "reward", and the last player to decide to place a "bid" and lower the value of the reward wins that reward.

Once the "auction" has been won, the auctioneer collects the final cost of the item in addition to the monies already collected by selling "bids".

Example

For example, an auctioneer might put a $100 gadget up for auction in a system that charges $1.00 per bid. Each bid increases the auction price by $0.10. Let's say that the starting price of the auction is $1.00, and that the final ("winning") bidder manages to acquire the gadget at the price of $25.00. To get from $1.00 to $25.00 in $0.10 increments requires 240 bids. Each bid cost each bidder $1.00. Thus, the auctioneer has collected $240.00 for the bids, plus $25.00 for the sale of the item, for a total of $265.00. Assuming the auctioneer paid $90 for the gadget, the gross profit is $175.00. However, it is unknown what customer acquisition costs are to run an auction so even those auctions that appear to have high profit may actually not generate a profit.