Penny Online Auctions – Is It Gambling? What Are the Experts Saying?

Picture of a gavel used at an auction and money.

Most of us are familiar with online auctions. Some of us have a personal experience while others have heard of them, or viewed an auction on television. Auctions have become a popular way to sell products on the Internet; one can make a reasonable amount of money by selling products through an auction. This article, discusses specifically, the so-called penny auctions. I think it is necessary to point out certain facts about penny auctions that most people may not have heard of. In the latter part of this article, I write from personal experience with the portal zeekler.com.

 

Classic Electronic Auction vs Penny Auction

The principle of classic online auctions is that an item is offered up for auction. Any interested person may submit a bid – i.e. the amount of money they are willing to pay for the product. If there are other persons, they will also place bids; this increases the price of the item which is up for auction.

We are now faced with a situation where several candidates attempt to out-bid each other for that item; as they do, the price increases with each bid. The winner is the person who offers the highest bid, that is, who is not outbid.

You may wonder what happens to the money of the other bidders? With classic online auctions, their money is refunded; meaning, they haven’t suffered any loss. I’d say that’s fair, wouldn’t you agree? But what would you say if the provider of the auction did not refund your money? That’s how penny auctions work – the money of the persons who do not win is not refunded.

 

The Principle of Penny Auctions

The penny auction is similar to the classic auction. However, there are some differences:

Time allotted for bidding on an item is restricted; Usually, the bid placed is only a few pennies.

 

For example, the operator may announce a refrigerator for auction. Bidding time is set for 24 hours and the count down to zero begins after the auction starts. Bids on the refrigerator can be places by interested persons.

Before bids are placed each person needs to purchase credit with one of the currencies the penny auction website uses.

After submitting your bid, the original zero price of the refrigerator will be increased by a few pennies. What tends to happen with this kind of auction is that most people will wait for the last few minutes before the end of the auction to place their bid. Whoever places the last bid, wins.

 

This picture shows a few auctioned items from the zeekler.com auction portal.

 

But what happens to the money of those other bids which were placed? Those persons who have not won? That’s the Catch 22! Those people will not be refunded their money – they have simply lost it at the auction.

 

Is It an Auction, or Just Regular Gambling?

Penny auctions could be tempting mainly because interesting and often expensive items such as mobiles, laptops, and other electronics, or even a car or vacation trip are put up for auction.

Remember that most of the items are auctioned at a fraction of their retail price. For example, the above-mentioned refrigerator, which would cost approximately $500, could be auctioned for about $50. How is this possible? Because logically, the penny auction operator would not make a profit. Most people don’t realize that while a single bid can increase the value of the auctioned item by a negligible amount (for example 0,01$), the actual credit purchase costs $ 100. As a bidder, you would use your credits to place bids. When purchasing bids, you are spending $100 per 100 bids. Therefore, if a refrigerator was auctioned off for the ridiculous amount of $50, it actually cost a lot more as, in reality, the participants bidding for the refrigerator had to place thousands of bids. Logically speaking, if one bid is worth $1, the operator had just earned several thousand dollars.

 

The only real winner in our example is the portal operator, who made an unbelievable amount of money.

 

It often happens that to win hundreds of bids have to be placed. At the end of the bidding process, you may find that more money has been used placing bids through the platform, than if the refrigerator had been purchased for 500 USD from a store. Additionally, other players are the unfortunate ones since they will NOT be refunded the money spent on purchasing credits. For this reason, many critics consider this method of auctioning to be a form of gambling.

 

Why the Best Thing Is to Avoid These Auctions?

Most operators announce an electronic auction when they actually do not own the auctioned item at all; they usually buy the item afterward from the proceeds of the auction. Last year, a report appeared in the UK, where one owner operating a penny auction portal admitted that he did not own the items for auction nor were they available. However, this is not the worst possible thing.

Recently, interest in these auctions has declined considerably since persons have begun to understand how the system operates. Owners of such portals resort to different measures since the objective is to make a real profit. They, therefore, utilize fictitious players or robots, which ensure that the item for auction does not sell too cheaply. For a skillful programmer, this is a relatively easy task. After all, let’s imagine – if there are only two real participants bidding for the refrigerator with only a few bids, how do you think the portal operator would react? Do you think he would allow the refrigerator to be auctioned for the final price of $2? I seriously doubt that.

 

You can never be sure with these kinds of auctions who you are up against. Are you bidding against a real person or a robot?

 

Fictitious Players

The robots simply take on the role of a person who acts as if they are interested in the product. They bid and artificially increase the value of the items. Another trick can be that robots have been known to place bids in the last few seconds of the auction, so everyone else – especially the real participants of the electronic auction – are out of luck. They have neither won the auctioned item, nor their money.

 

Robots are mostly deployed from the beginning of the auction. They would only be deployed towards the end occasionally when the owner needs to quickly increase the value of the goods (in order not to bear a loss). Using a robot can also extend the auction time.

 

If you still consider penny auctions as an attractive way to buy expensive things cheaply, try looking at the various discussions on the Internet. There are countless numbers of these on the Internet, you can read about the experiences of various “players”. This may not surprise you, but for the most part, you will find largely negative responses. For example, check out this story:

 

“Two, maybe three people are constantly outbidding you. They tend to take it in turns and when you stop bidding, the item will most likely sell as they cannot outbid each other. You may find that the same item will be put up for auction within the next few hours or days.”

 

My Personal Experience with the Penny Auctions

I, too, have some experience with this type of earnings. Yes, you can actually call that an earning, since you have won a product at the auction cheaply, and may be able to later sell it to someone for the normal retail price, or at least so I thought and planned to act. I later realized that the only person making any profit is the owner.

 

Conclusion

As you can see for yourself, penny auctions are a well-designed system to get money out of people. What’s more, in most cases no physical items are actually auctioned, and towards the end of the auction, the robots get to work, so the auction system operator earns a fair amount of money.

One such fraudulent auction site was the portal zeekler.com. This site has been closed due to deceptive and fraudulent practices.

 

I would like to conclude by stating that not all of the Penny auction sites are functioning in the way described in this article. Of course, there are plenty of honest companies, which do legitimate business, offer actual products and don’t use bots for the auction process.

 

Haven’t you find what you were looking for in the article? Then check the discussion forum. There may be some interesting information on this topic.

Have you ever come into contact with penny online auctions? I will be glad if you join the discussion and share your experiences. Personal reviews are more than welcome. 

 

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