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of successful sites operating on this model, which they usually call "penny auctions". Typically, consumer electronics such as cameras, laptops and MP3 players are sold. Bids typically cost 10-25c USD each(or 50p on Swoopo.co.uk, $1 on Winners24.com and up to £1.50 on MadBid.com in GBP), each increasing the final value of the auction by 1-2c(or 1p), and extending the time of the auction by another 10 seconds or so. For example, bid4vouchers.co.uk sells bids for 50 British pence, raising the price by one penny. This means that any item which sells for more than 1/40 the RRP is a guaranteed profit. Any item which sells for the RRP is effectively selling at a 4,000% profit. Conversely, an item that sells for 1c is clearly a loss of whatever the site must pay for the item - it is generally presumed that the sites "drop ship" the items. The most well known examples are perhaps Tenderosity.com, bid4vouchers.co.uk, bidray.com, gozila.co.uk and bidstick.com, with dozens now in existence. Due to the real possibility of people spending a lot of money on the sites with no gain, or spending more than the retail value of the item they end up winning, a number of blog posts and articles analysing and criticising the model appeared. Other articles support the concept as a fun and innovative form of auction. One programmer, Andy Garcia, and Rupert Elder, a Graduate in Economics from the University of Warwick tried to "game" Gozila and MadBid, but failed to win any auctions before abandoning the attempt.
While penny auctions appear to have much in common with lotteries and other forms of gambling, they appear to avoid being regulated as such. Bidrivals.com, for example, operates from Malta, provides a legal advice statement explaining why it is not a lottery.
Features common to some of the sites include:
- Automatic bidding: bots provided by the site bid (called "AutoBidder", "bidagent", "autobid", etc.) on your behalf up to a maximum value. Multiple bots can end up bidding against each other until all but one reach that maximum value or run out of funds to bid with.
- Bidding on bid packs: some of the items at auction include packs of bids themselves .
- Discounts for purchasing larger numbers of bids.
- Rookie auctions for people who have not won any auction
Risks
The primary risk of the bidding fee scheme website is that it is misunderstood as a regular auction. Unsophisticated participants will not understand the distinction between a regular auction and a pay per bid auction, and so might apply poor judgment when participating. This has the secondary impact of polluting internet advertising with ads where a customer is unable to distinguish between regular stores or traditional auctions from pay per bid auction sites. As a consequence, the value of internet advertising and price comparison sites are diminished.
For example, one bidding fee scheme site placed an internet ad that advertised "A New PS3 at $80.35," deceptively implying that a new PlayStation 3 was available for anyone to purchase at that price.
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