Penny Auctions: Is It Worth it?
With the recent boom in online shopping, sites such as Amazon have made their name by standardizing prices and selling them at an affordable rate compared to retail stores. But what happens if we want to buy items at an even cheaper price? Perhaps the first destination that comes to mind is eBay, a popular auction site that allows consumers to sell to other consumers. And while it may be used, the items are often at a much discounted price.
To win an auction on eBay, consumers race to bid the highest price they are willing to pay before the time runs out. And if the bidder wins, he or she pays the second highest bid. In a nutshell, eBay is running a second price auction system. And as taught in class, the best way to win these auctions is to pay the most one is willing to spend on the said item. For the most part, eBay is successful, though there are a few tricks into winning the bid since eBay is not a sealed price auction site (people can constantly raise and re-raise).
But besides eBay, there are other sites that feature bidding-type purchases. Quibids, for example, is known as a penny-auction site and instead of having users bid their own prices, the company has people purchase bids that they can use to increment the price of an auction. Typically, the price increases by a penny, hence the term penny-auction. In addition, each time an auction is incremented, there is a timer of 20 seconds. If the 20 seconds run out, then the user wins the bids. In this case, then, how should users take on these penny-auction sites?
Unlike regular auctions, each bid costs a certain amount of money. If a user does not win the auction, not only does the user not get the item, but also loses the money that was spent on bidding. From a payoff stand point, one is constantly losing money unless one wins. And if losing money while paying for the bids isn’t enough, Quibids also offers users the option to buy the item at retail price subtracted by the money that was spent on the bids. And users who go to auction sites often aim to buy products at a cheaper rate. Instead, users who have spent a substantial amount of money on the bids are often more inclined to buy out the product and coincidentally pay an amount that they did not intend to pay.
Looking at Quibids as a whole, it seems as if the site promotes auction-type selling. Other users have said that it resembles gambling because there is no payoff in any form unless one wins, relative to other bidding sites where if the user does not win, there is no negative payoff. So when it comes to dominant strategies, it may be best to just stay away from penny-auction sites.
http://www.wsj.com/articles/SB10001424053111903392904576512280986981242
http://www.businessinsider.com/how-to-win-at-quibids-auctionswhich-might-just-mean-stay-away-2011-4
Great article! I would like to add though that some penny auction sites do offer a Buy It Now option that you can use as a safeguard if you don’t “win” the auction and then the bids you placed get put back into your account. That way, you don’t lose your bid money. I’ve been skeptical of such platforms but recent reviews of DealDash https://www.sitejabber.com/reviews/dealdash.com for example look promising. Seems like they’ve made some good adjustments.