Penny auctions, also called bidding fee auctions, are all-pay auctions where bidders pay non-refundable fees to place incremental bids. As the term suggests, these bids are in pennies (and U.S. cents in the United States).
Auctioneers make money through the payment for the bid that wins and through the non-refundable fees.
Some of the most popular items on sale in penny auction sites are electronics like iPads, shopping gift cards, jewelry, and fashion items like designer bags.
The History of Penny Auctions
The term ‘penny auction’ has its roots in The Great Depression. Many farmers in the U.S. were unable to repay their farm mortgages and were being foreclosed upon. Banks would get the foreclosed properties and sell them in auctions.
The bids would be so low that other farmers would get the farms for pennies. After the auction, the bidders would return the land to its original owner.
The Different Types of Penny Auctions
There are different types of penny auctions, all requiring different strategies. The types of different auctions include:
- Cent auctions: With these auctions, the price rises by one cent/penny each time someone places a bid. The timer adds between 10 and 20 seconds after every bid.
Auctions with no auto-bidders: Some auctions in online auction sites do not allow auto-bidders – all the bidding must be done manually. This is usually done for high-priced items like plasma TVs.
- Beginner auctions: Most online auctions often feature beginner auctions. Here, people who have not won anything yet, get to bid among themselves. Winners can no longer be part of such auctions.
- Open auctions: These are auctions that are open to all members.
- Fixed price auctions: In these online auctions, the winner of the bid has to pay the price displayed in heading as well as delivery charges.
- 100% off auctions: Many auction sites have 100% off auctions whereby the winner only needs to pay shipping charges. These auctions are done for promotional purposes/to reward active bidders.
- View price auctions: In these auctions, the current auction price is hidden and you will have to pay a fee for each view.
- Reverse auctions: Reverse auction sites start at prices close to the retail prices (MSRP) of the items being sold. The price drops with each bid. You have the option of buying the item at the current price.
- Lowest unique bid auctions: In these auctions, the winner is the bidder who has the lowest unique bid.
- Seat auctions: A seat auction requires that you buy a ‘seat’ in the action before the bidding begins. These auctions are mostly used for large prizes like real estate and cars.
How do Penny Auctions Work?
It is important that you understand how to use penny auctions. You get to determine the product to bid for. You will have to buy a non-refundable fee (or ‘credit pack’) to take part in a penny auction. You can buy as many credit packs as you wish for future auctions.
Each bid you place costs you a credit pack. The price of the item usually starts at zero. With each bid you place, the price of the item increases by a pence or one U.S. cent, depending on the country.
The bidding stops when time elapses on a current bid price. Some auction sites indicate the elapsing time while others have ‘hidden random reserve’ prices.
Advantages of Bidding on Penny Auction Sites
You should place bids on penny auction sites since you stand to make good money. In most cases, products go for about 10% of their retail value. The price of ‘credit packs’ is very low, meaning you will not lose much money even if you do not win the bid.
Penny auctions follow an entertainment shopping model, meaning you will have a lot of fun while bidding. There are many items to choose from, meaning there is no risk of ending up with an item you will not use.
The fact that you will be shopping online is advantageous in that you get unparalleled convenience since you can shop whenever you want, wherever you are, you save on transport, and your anonymity is protected.
How do you Increase your Chances of Winning?
There are several tips that will increase your chances of success in penny auctions.
Avoid bidding wars: Do not click on a bid the moment another bidder places a bid. Allow the timer to get down, just in case other bidders place bids. Your aim should be placing as few bids as possible.
You should not be the first bidder: You spend a credit pack with each bid and you should therefore, start bidding when you suspect the bidding is about to stop.
Do not bid on items that have more than 2 minutes left: The best bids are those with less than 10 seconds left.
Be dedicated: Do not place one bid and give up when somebody else bids. Choose an item that you really want and go all the way.
Watch the other bidders: Bid for items where there are only a few bidders. The best item to bid for is one where bidders are reducing, not increasing.
Buy bid packs: Bid packs are cheaper than buying a few credit packs at a time.
Research on the item: Researching on the item ensures that you are not overbidding for it.
Use a strategy: Study and use such strategies as the Hawk-Dove or Snowdrift Game theory and research on how to use penny auctions.
Use an intimidating user name; this might just work! An intimidating or confusing user name might dissuade bidders from bidding against you.
Go all the way: If you are in too deep, go all the way. As an example, if you have already spent $200.00 on an item worth $300.00, you have nothing to lose by going all the way.
Picking a Good Bidding Website
Go for a site that does not violate laws under the Unlawful Internet Gambling Enforcement Act of 2006. You could read independent penny auction reviews or check with consumer protection agencies to determine whether your penny auction site is legitimate.
Other ways to pick a legit bidding website are reading the fine print in the site’s Terms and Conditions, reading comments, and considering the verification seal.
Go for a bidding site where it is easy to contact support, where free bids are on offer, and where winning is easy.