Beware Of Penny Auction Sites
In an effort to inform the public at large, especially the online auction bidding community, I write this article as a caution for those people who might find themselves using a so called "penny auction" service. These sites have been popping up a lot in the last few months and they are quite the sensation. They claim to let you win incredible new items like iMacs or laptops for literally pennies on the dollar.
However, when you start doing the math behind these kinds of sites, it certainly doesn't quite add up the way it should. You see, unlike eBay that takes a percentage of the winning auction price, these sites have a much more nefarious auction scheme - you must purchase the right to make bids on different items.
The idea of a site like Swoopo is to basically inflate the purchase price by much more than the actual price of these new items, so that in effect people end up paying more than the market price. The company itself doesn't end up buying the product until the auction ends. It's very bizarre really when you think about it.
It works on a simple principle. People like playing games and winning things. This has been going on since the dawn of human civilization. Games keep people entertained when nothing else will. However, we're talking about real money here, not some video game.
Each time a user wants to make a bid on one of these sites, they must purchase the right to bid. It costs $0.60 per bid for example on Swoopo.com. So, if the auction increments by $0.60 per penny bid, each dollar of bidding is worth $60.00. If an item sells for $100, Swoopo made $6,000, plus the $100 for the sale price. If the actual cost of the item is less than $6,100, Swoopo makes money.
The difference between the actual price and the total bid cost plus purchase price is the spread, or the profit, that the penny auction company makes. The name of the game is to keep a high spread on the items. At $60.00 per dollar of bidding, that doesn't take a whole lot of effort on Swoopo's part.
The real evil of this system is that it's a lot like playing with monopoply money. People purchase bids and their money is gone unless they manage to win. Even if the penny auction site lets them use the bids more than once, aka. to recycle them, it's still sunk money into the pit basically.
Statistically, for these systems to work, they're like casinos and the odds must be tipped in the favor of the house, otherwise the house loses and the casino shuts down. I'm not saying that Swoopo is gambling or a casino. What I'm saying is that it's not even close to being like eBay. Even if Swoopo is reputable enough to send out the actual items, the numbers don't lie. They're basically getting people to pay a MUCH higher price for items as a collective in hopes of winning. It's kind of the same way that the Powerball system works. There is only one winner, and thousands, if not millions, of losers in this equation.
Don't be a loser. Avoid penny auction sites.