Rhodri Marsden: Are online penny auctions nothing more than a gamble?

Cyberclinic
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The Independent Tech

Your eye for a bargain might well be distracted by a website selling a laptop for £3.23. "That's a price hitherto unmatched by any high-street retailer," you'd think, "so I'm guessing it must be completely knackered." But no, the blurb insists that it's brand-new.

Further down the page, you see £1,000 cash being auctioned off at the knockdown price of £27.35. Now, this either represents a timely overhaul of all the established rules of economics, or it's a con.

But actually, this new breed of auction websites – penny auctions – are perfectly transparent. The prices are real. But by charging you to bid, they've created an incredibly cunning business model that appeals to our insatiable greed while raking in huge quantities of cash.

The system is quite beautiful. You start by buying some bids; on the site I shamefacedly signed up to, five bids cost £1.30 each, although they're cheaper if you buy in bulk. An auction starts on, say, an iPod, for zero pence. A two-minute timer starts to tick down. "Wow," you think. "iPods are worth a bit more than zero pence." You bid. You're down £1.30, the auctioneer is up £1.30. The price goes up by a penny, and the timer resets back to two minutes. Whoever is the current bidder when the timer finally reaches zero, wins – but the auctioneer wins big-time; for example, that £1,000 cash auction currently has 2,735 penny bids – around £3,000 in revenue.

One penny auctioneer reacted to calls for a referral to the Gambling Commission by saying: "This is definitely a game of skill, and would not fall under any circumstances under the definition of gambling." Well, my incredibly deep resources of logic, common sense and manual dexterity were untroubled, but I did blow £6.50 in about 15 seconds. My chances of winning depended entirely on other frantic bidders not clicking a big green button after I did; now, the site could conceivably claim that there's skill in knowing at what price level to bid – but as the items rarely reach anything near their RRP, estimating that is virtually impossible.

And man alive, it's compulsive. That Sony LCD television looks rather tempting at £10.53. But it would still look tempting at £310.53 – at which point the auctioneer would be up by around £35,000. Not illegal. But certainly dangerous for those whose eyes are bigger than their wallet.



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