Penny Web Auctions - Scam or Con?

Enter the new breed of online auctions which are growing at phenomenal rates across Europe. If you're thinking Ebay, you're way off. Under the blight of a global economic meltdown, many people are turning to online auctions to grab bargains. Such as 26 year old Sandeep Anantharaman of Hertfordshire who in September participated in an online auction for a brand new Mini One car. He won the bidding and paid just £6.83 for the popular car.

Sandeep took part in one of the new fangled type online auctions which have thrown the old rules away and do things differently in a big way. The auction he used was Madbid.com. This site covers the cost of the items sold by charging bidders per bid. Typically bidders pay £1.50 to text bids or £1.40 per online bid. The auction price increases by just 1p on each subsequent bid and at each new bid the timer is reset. If your bid is the highest when the timer runs out, you're the winner. The timer can be set at various intervals, anything from 30 second to 3 minute and as the clocks runs down so the suspense increases.

It's hard not to get excited when seeing auctions close at ridiculously low prices for sought after products. Wouldn't you want to pay £24.85 for a brand new Dell Studio Laptop valued at £499?

Or £1.74 for £150 cash? Sure we all would! That's not the real price though and therein is the rub. For every one person who wins the bid at a cost of the bid price multiplied by the amount of bids they made plus the hammer price and delivery charges, there are all those that paid to bid and got nothing.

Look at the £150 cash auction mentioned above. The winner paid £1.74 which means there were 174 bids from zero, each increasing the price by 1 pence. Lets say for arguments sake 3 bidders were involved in the bidding and each bid an equal amount of times. That's 58 bids each at £1.50 per bid. Therefore two bidders forked out £87 each and got nothing. Some bargain! Realistically there may have been more bidders, but while that would bring down their individual losses, it just increases the pool of losers.

There are other online variations of this kind of pseudo-auction, but when bidders are required to pay per bid they should immediately be on their guard or risk throwing away money for nothing. Promoters and spokespersons of these sites in fact likened participation in their auctions to engaging in a game of skill. This is an old chestnut used every time somebody defends gambling.

These sites have experienced enormously fast growth and have spread through communities like wildfire. The truth though, even after tying on her boots, is not far behind. A search across various forums reveals that people are cottoning on quickly to the fleecing nature of this kind of bidding. Calls are being made for the UK's Gambling Commission to step in and regulate these sites. The Gambling Commission is however maintaining a watch and see attitude.

The irony is that during the depression of the 30's in the US, Penny Auctions had a very different connotation. Farmers were unable to pay bank loans and the banks began foreclosing. Farm land and equipment was being auctioned off allowing the banks to cover the outstanding loans. Farmers, being the good salt of the earth folk they are, began to attend these auctions and basically intimidate bidders into bidding not at all or just pennies. One such auction in 1931 and perhaps even the first in which the farmers and their friends employed this tactic was at an auction of the Von Bonn families farm in Madison County, Nebraska. The reported proceeds of that "Penny Auction" was $5.35.

A different take on auctions is what is called a reverse auction. Traditional auctions see buyers place ever increasing bids for an item. Reverse auctions, as the name implies, get suppliers to compete with one another for your business by under bidding one another. In effect buyers are bid shopping. At the end of the auction the lowest bid wins. This kind of auction is particularly suited to high cost items for instance new cars and offer buyers the opportunity to save 20% or more on the list price of cars. As long as the auction is run on this basic premise you should do fairly well buying in this way, but BEWARE! Ensure that the site you are using does indeed follow the described format. A quick online search for "reverse auctions" lists a lot of sites that still expect you to pay per bid and you only win if your bid is both lowest and unique. An example of a genuine reverse auction is autoebid.com who as the name suggests deals in new cars.