The Strategy Behind Penny Auctions
Today, almost everything is bought online and consumers are looking for cheaper and faster ways to get the products that they desire. One way some achieve this is by going on online auction websites such as eBay or Beezid. These websites offer discounts on many brand name items, but the consumer must bid on the items, rather than just flat-out buying them. While eBay is much more like an Ascending Bid Auction, Beezid takes a different approach and puts a spin on the English Auction. Each item on Beezid starts off at $0.01 and has a timer that shows how much time is left to bid on the item. Every time someone bids on an item, the price increases by a penny and anywhere from 10 to 45 seconds is added to the timer. Once the timer runs out, the last person to bid wins the item and must pay for it. The kicker is that the consumer must pay for each bid they use, which usually costs around $1 per bid, but the price per bid goes down if you buy bids “in bulk”. This means that the bidder can spend a large amount of money without winning any products. Beezid is known as a penny auction site and there are dozens more just like it. In their commercials, Beezid shows people winning expensive electronics or even cars for prices that seem too good to be true, and thats because they are. They never disclose how much those bidders spent on bids in order to win those products. For example, one Beezid commercial shows a brand new car being won on their site for around $750. Lets say the car cost Beezid $25,000 and they sold it for $750. What people forget is that the bidding started at one cent. This means that 75,000 bids had to be placed in order to get the price that high and if you multiply the number of bids by the cost of the average bid, which is around $1, you find that Beezid has tripled their initial investment!
Beezid looks like a cheap alternative to paying full price for brand new products, when in reality, the consumer will end up paying just as much, or even more than the item is even worth. There is also a chance that the consumer may not even win the item and will have spent tens or even hundreds of dollars on nothing at all. Bidding on an item also requires a fair bit of strategy. The strategy for this type of auction is generally to stay in the auction and to stay bidding until your value is reached, however, in this instance, the costs associated with bidding are most likely prohibitive and will not let people follow this strategy. The timer also gets reset with each bid, thus prolonging the time the auction is active. These contretemps make it almost impossible to come up with a logical, reliable strategy. In short, penny auction sites such as Beezid offer great deals, but only one person will win the item, while the other people who bid on the item walk away empty handed, sometimes having lost hundreds of dollars. A consumer is much better off buying the item from a retailer than from trying their hand at one of these penny auction sites..
URL: http://news.yahoo.com/blogs/upgrade-your-life/hidden-dangers-penny-auctions-163331290.html