I have written before about the dangers of penny auctions. It is very worrisome that they have become even more popular since, and with additional bells and whistles that make them even more dangerous. I have stumbled upon an auction where the bidding will lead to the bankruptcy of at least one person.
Look at auction 19850 at BidHere.com. This is for a gaming computer, an Alienware Area-51 ALX Desktop with an estimated retail price of US$3999 (the true retail price is certainly lower, but that is not the point). The rules of the auction are: bid increments are $0.02, any new bid delays the conclusion on the auction by 15 seconds, every bid costs $0.60, automatic bidding is allowed, and the winner does not have to pay for his/her bids. This last rule is spelling doom.
As I write this, the bids are approaching $1500.00, which is not a bad price. But one has to realize that this implies that almost 75,000 bids have been placed, for a cost of $45,000.00. When I first noticed the auction two days ago, three bidders were bidding automatically. Yesterday evening, the same three were still at it. Today, two are left, the third one having probably maxed out all credit cards. The remaining two will be continuing until one is bankrupt. Indeed, they have each invested so much into this auction that they absolutely need to win it at any cost, given that the winner gets reimbursed for all costly bids. And the fact that automatic bids are allowed helps this madness.
Of course, this should remind us of the St. Petersburg paradox, where an infinite expected payoff can only be gained if one has infinite resources. I'll be watching the auction, which could be continuing well beyond the market value of the computer. And imagine if a last minute bidder snatches it away from both current bidders...
These auctions are a disaster. One has a tiny chance of winning in the long run if one is able to systematically jump in at the right moment. But the automatic bidding kills that as it has an advantage over manual bidding of placing a bid at the last split second. But automatic bidding can go horribly wrong as this example shows.
ReplyDeletePenny auctions are going to get really hurt by this. All what the auction house can do is cancel this auction and refund everyone. This is getting out of hand.
ReplyDeleteImagine the profit margins of this auction house! No wonder you see penny auctions aggressively advertised all over the Internet,
ReplyDeleteIt is quite addictive to watch this auction. But I cannot imagine the horror the two bidders are going through.
ReplyDeleteBidding price has in the meanwhile reached $1500 and is still going on.
Awesome computer. But there is no way I am going to bankrupt myself for not getting it.
ReplyDeleteThis would be awesome to play Doom 4, if it is ever released. In the meanwhile this is the auction of doom.
ReplyDeleteIt's like watching a train wreck, only more horrific. The thing is, I kinda liked Auction Theory back in the day...
ReplyDeleteI think part of the bidding strategy would be to base you bid increment upon how much ever one has invested in it. For instance if you think people have at least $100 invested in it then make you bid increment at least $100.
ReplyDeleteRe comment above: that would not be profit maximizing for the auction house. And technically, you have nothing invested, as all bids are sunk.
ReplyDeleteConsidering that there have been 75000 bids, one every 15 seconds, they have been bidding for over 13 days now... How are their credit cards allowing that?
ReplyDeleteThere are now plenty of different users making single bids. Why?
ReplyDeleteNow "sapphire" and "GermanMade" are bidding at $1779.
ReplyDeleteAND they compete (only) each other also at auction 21961 for a gee-whiz TV. It doesn't give any bids back for the winner, making it less of a trap and more of a plain moneyburner, about $75 per hour. So maybe they are not real persons but just buggy bots owned by site itself, spending virtual money?
Yews it really looks like the auction house is caught cheating here.
ReplyDeleteThe same users are also bidding frenetically on other items, driving prices way up. And the original auction is till going on. Bidhere.com is definitely a fraud and a scam.
ReplyDeleteresponding to the previous comments, no they are not bots, i happen to know one of these people who are bidding.
ReplyDeleteBidHere.com is looking into the allegations discussed here and will react.
ReplyDeleteThe auction has been erased from the site. It is even erased from past auctions.
ReplyDeleteThe same two bidders are at it on another auction now: 23139!
Last time I looked, it was at about $2400.00, which makes $72,000.00 in bid fees. Crazy.
ReplyDeleteThanks for the post! Penny auctions are very interesting, a lot of people think they are a scam, but in reality they are just another game similar to gambling.
ReplyDeleteGambling with particularly bad odds, and really well hidden odds to top it.
ReplyDeleteHey everyone! I just wanted to share my two cents, and invite you to join in my forum that is dedicated to discussions about penny auctions. Penny auctions are a double edged sword. There ARE good values to be had, however, the shady and scandalous sites put a damper on the enjoyment of winning. The best advice that I can give anyone who is venturing into the world of penny auctions, is to BE AN INFORMED CONSUMER. Do NOT jump into an auction site and immediately purchase the biggest bid pack that they have for sale. Watch, watch, and watch some more. Learn who the dominant bidders are. Learn how the timers work – are they glitchy? Read about the terms and conditions, and win limits that are set up to stop any single bidder from dominating the sites. View the closed auctions pages and see when other bidders might have met their daily/weekly/monthly win limit. Then…. and this is probably most important – purchase bids only in sync with your personal budget. DO NOT LET THE BIDDING FRENZY CAUSE YOU TO BUY MORE BIDS THAN YOU ARE PREPARED TO SPEND MONEY ON. If you win, it’s best to stop after a couple or few wins, and make sure that the site actually follows through and ships the stuff out to you. ASK QUESTIONS – send off emails to the site and make sure that they respond with the timeliness, courtesy and professionalism of ANY REPUTABLE RETAILER. If not, be cautious of the site. AND ONE OTHER THING: there are forums out there like mine (www.pennyauctionwatchdogs.com) that are designed to discuss bidding strategies and to discuss honest and cheating sites – check them out – it just might save you money!!!!! GOOD LUCK AND HAPPY BIDDING!
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