29 February 2012
Penny auctions are a sometimes exciting, sometimes frustrating and sometimes great way to shop for retail products on-line. Penny auctions were initially brought to the world by now defunct Swoopo.com. Rather than getting into a lengthy article about the many re-incarnations and different types of penny auctions we will simply explain how standard penny auctions generally work.
Penny auctions offer a retail item up for bid in what appears to be a standard auction style similar to eBay. The similarities end there. Here's a brief look at how penny auctions work....
Items listed for sale on penny auction sites generally start at $0.00 and this price increases with each bid placed for the item in 1 cent increments, thus the term "penny auction". The bidder that is on top when the timer reaches zero wins the right to buy that retail item for the current bid price, and yes that could be at up to 99% off its retail price!
Timers on a penny auction site do not indicate the time at which an auction will end, but rather a time at which the auction "could" end. When timers on penny auction sites begin to approach the end there is usually a set increment of time added to the auction with each bid that is placed. The theory is that this then gives a bidding opponent a chance to also cast their bid and prevent last second sniping of products. These timer resets can cause auctions to last hours longer than they initially appear.
Bidders that wish to participate in standard penny auctions must first buy credits, or bids. These bids can be bought in packs, also know as bidpacks. Each time a user clicks the bid button one of these credits is used to place a bid and make that person the current leader in the auction. If time should run out while your listed as the top bidder, you win. If someone else bids after you then your credit was lost and you must now expend another credit to become the top bidder again. These bids are not returned at the end of an auction.
How sites sell items
Penny auction sites depend on the bids placed in each auction to account for the sale of the item at the extremely low price. Each bid credit will have a value which can be used to determine how much, or how little, the site actually "sold" the item for.
An example of how this works
Lets take a simple $25 Giftcard. Retail value is, of course, $25. Bids at this site cost $0.50 on average. The final end price of $0.37 represents that 37 bids were used in this auction. The site collected $0.50 per bid, or $18.50 plus the end sale price of $0.37 for a total of $18.87. In this example the site lost money, but let's now look at an auction for that same $25 card with a final end price of $1.10. This auction could bring the site $56.10 on a $25 gift card!
If you still have questions about penny auctions, visit our penny auction forum to read more, or post your question for our members!