Penny-Auction Strategies
Since the beginning of mankind, trade has acted as a market that enables individuals and groups to transfer the ownership of both goods and services. Ranging from essential articles, such as food, to extravagant novelty items, trade has marked its ownership in the American culture. Trade can be found in multiple forms, such as free trade, silent trade and commodity trade. However, since the rise of the information age in the early 1990’s, electronic media has dominated the trade field. Initially starting with the bartering of goods through auctions, electronic trade further evolved through what is called a “penny auction.”
Penny auctions refer to a form of trade in which participants purchase bids for a non-refundable fee. After purchasing bids, the participants are then able to use their bids, and thus increase the price of the item. Once the auction time expires, the participant with the highest bid is awarded the item at that price, while the losing participants are left with nothing and lose their bids. Penny auctions are initially sought-after since items are sold at such a low price, hence penny auction. Quibids.com, a penny auction Internet site that has greatly expanded its network since it was launched in late October of 2009, runs over 200 auctions a day – the largest penny auction website in the United States. Although Quibids.com has attracted a lot of attention, many critics label Quibids.com as a scam.
The results of Walker and Brown’s case study reveal that Quibids.com has a business strategy role of e-commerce to make company profit, while enabling consumers to bid on products. By buying and selling goods electronically, as well as services, this e commerce strategy leaves many consumers to spend money, and in return receive nothing. Quibid.com requires people to pay for the choice to bid, but they don’t allow changing the amount of the bid. Thus, they have complete market control to force the price up and ultimately profit the whole time. If Quibids.com exercise control to market power, then how should one bid?
In order to maximize your payoff, while eliminating the possibility of obtaining a negative payoff, one must first take into account the initial bid price. By adding 60 cents to each of your bid, and thus value, the auction now turns into an ascending-bid auction, where the price is raised and bidders drop out until finally only one-bidder remains. In ascending-bid auctions, game theory revolves around the participants’ true value. Consumer should stay in the auction up until the price reaches their true value. Thus, they avoid the possibility of a negative payoff such that value < bid. The only payoff’s possible are a positive or zero run, since if you bid to your true value, then it is likely that the consumers value > bid (value-bid > 0) resulting with the difference as a positive payoff. If value = bid, the payoff is zero, thus there is no incentive for the consumer to further bid.
Additionally, it is favorable for the consumer to bid when the auction time is closer and closer to zero. In the case that a bidder bids with a lot of time left, it is likely that someone else will place a higher bid, resulting with a loss of 60 cents to the initial bidder. By bidding late in the game, you use less bids allowing your value of the product to be greater, since you do not have to account for waste of bids. The ascending-bid auction of penny auctions show that the most favorable strategy is for the consumer to bid at their true value.
Sources:
http://mcis.marietta.edu/community/rwb004/files/2011/04/Case-Study-3.pdf
http://www.pennyauctionwatch.com/2010/01/interview-reviews-quibid-penny-auction/
I don’t think Quibds is a necessarily a scam, I think it may be misunderstood. Only time will tell,as there are hundreds of penny auction sites that have folded after less than a year in operation. I haven’t tried Quibids, but I think it’s quite similar to Beezid, and I REALLY like Beezid. What I like the best is that I can track user history and assess the bidding tendencies of other users, this helps me bid accordingly with success. Nice post.
I must agree with you, Quibids is not a scam. However, the comment I posted claiming Quibids to be labeled as a “scam” merely represents the consumer frustration in the bidding process.
An interview with Matt Beckham, CEO of Quibids, revealed a response to the claim that Quibids is scam and that bidders are often faced against ‘bots’ – computer programs aimed at winning an bid by constantly outbidding users. Beckham states:
‘I feel that anytime a consumer potentially spends money and gets nothing in return, (other than the experience of competing for prizes), you are going to have those who say it’s a scam.’
I did not mean to label Quibids as a scam, but I was just illustrating the frustration exhibited by many of their bidders. Sorry for any confusion. Thanks!
I must agree with you, Quibids is not a scam. My previous post claiming that critics label Quibids as a scam was merely to show the frustration exhibited by many bidders.
In an interview with the CEO of Quibids, Matt Beckham responds to the claims that Quibids is a scam or run by automated ‘bots’ – electronic programs intended to constantly outbid the user. Beckham states:
‘I feel that anytime a consumer potentially spends money and gets nothing in return, (other than the experience of competing for prizes), you are going to have those who say it’s a scam.’
My earlier statement claiming critics to view Quibids as a scam was an attempt to illustrate frustration experienced by many users, not an attack against Quibids. My post then attempts to aid these frustrated users introducing them to the concept of Ascending-bid auction in Game Theory. I’m sorry for any confusion.
Thanks!
This is an excellent article that provides great references.
When it comes to penny auctions, much like anything that requires you to gamble to a certain extent, it is about moderation and self control. And just like with eBay, I use penny auctions a few times per year and get a great deal, as oppose to bidding on many items and winning none.
There will always be scammers out there, it’s the nature of the business. If you are interesting in using a penny auction, do some research. Pennyauctionwatch.com is a great resource for this.