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Penny Auctions: A Great Deal or a Scam?

Are penny auctions scams? When electronics can be so expensive, even if you aren’t spending $25,000 on a projection TV [1], you’ll still want to find a way to save money on your purchases. And if you are the type of consumer who hunts after the latest technology as soon as it comes out on the market, you’ll be even more enticed to check out a deal.

Advertisements offering the newest gaming consoles, DVD players, digital cameras, etc. for 1₵ that pop up in your email or on sites may sound extra tempting, but as with any extremely tempting deal, you need to do the research and understand what is involved. Let’s take a look at how Penny Auctions work and see if they are worth your time and money.

What is a Penny Auction?

According to Wikipedia, “a penny auction [2] is a type of auction in which participants must pay a non-refundable fee to place a small incremental bid. When time expires, the last participant to have placed a bid wins the item and also pays the final bid price, which is usually significantly lower than the retail price of the item”.

How to Buy Into the Action

Penny Auction sites such as beezid, bidcentsible, bidsauce and bidcactus will typically charge a non-refundable fee of around $15-$20 to get in on the bidding. This essentially buys you bids, which cost between $0.10 and $1.50 each (out of the initial fee). Each bid that is placed raises the price of the item by 1₵ and adds time to the clock, thus extending the auction. At the end of the auction, the winner must pay the price of the item that is displayed (this is on top of the non-refundable fee). 

How Can Penny Auctions Make Money?

By now you might be getting a better picture of how companies can afford to sell a new iPod or iPad for $2.41. Let’s say a product reaches $100, with the cost of each bid at $1.00. Since each bid raises the cost by 1₵, that means that 10,000 bids were placed on that product. Somebody wins, but the true winner is the website owner who just pocketed $10,000 minus the money they paid for the product!

Watch Out for These Penny Auction Scams

There are legitimate penny auction sites out there, and websites such as Penny Auction Watch [3] tracks the sort of information you need to know in order to avoid scams and to make the most of your “pennies”. However, many penny auction sites are filled with scams, and hardly any regulation exists to ensure that you and your wallet are protected. The most common scams are:

  • Shill and Bot Bidding: Some penny auction site owners use automatic software or friends and family members to place false bids in an effort to hike up the prices.
  • Not Delivering Items or No Winner: Some winners never actually receive their items, or no one actually wins the bid.
  • Credit Card Fraud: You can pay for your bids by your credit card, which can be dangerous at some sites. Instead, use paypal so that you are protected.    

If you are interested in finding the legitimate sites and placing bids on electronics, check out To Muse’s article on How to  Make Money Using Online Penny Auction Sites [4], a review of the top ten penny auction sites [5], and this penny auction comparison site [6].

If you want to avoid all penny auctions, you may want to stick to bidding at ebay [7] this holiday season.