Why Are Bids In Penny Auctions So Cheap?

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If you are reading this article, then you must be wondering how penny auctions work and why they are so cheap. They appear to good to be true right? Well, penny auctions are auction sites that will charge money each time a person bids. Every time someone bids, the price of the item goes up by  just one penny and hence the name penny auction.

There are hundreds of these sites in the internet, examples being Quibids and Swoopoo. Everyone wants to jump in this bandwagon and the main reason for this is that the business model tends to favor the business owners.

The main reason why these penny auction sites are popular is because one can get products are really cheap prices. However, this is not guaranteed and you can actually lose a lot of money trying to win. In this regard, you need to first understand how penny auctions work.

As earlier mentioned, penny auctions are auctioning where you will be required to pay a penny just to bid. This is actually in contrast to most conventional auctions. For instance, you can bid any number of times on eBay and they will never charge you a cent for the bid. You will ideally win the auction if you are the highest bidder.

On the other hand, penny auctions are won by the last bidder. Also, you can’t place any bid value you wish, you only bid to increase the product value by just a cent or a penny. So, the first bid will make the bid go to $0.01 and the second one will make the price go to £0.02. The trend goes on and on until the time is over.

Now it is easy to understand how an auction site makes money. Let’s say that there’s an item worth £10 and it sells for £2. You might think that £2 for a £10 product sounds like a good deal, but it is only for the winner. Put into consideration other people who have placed bids and had to pay for each bid and they ended up losing the product. So, everyone except the winner loses their money.

Now, let us look at the company’s profits for this example. Most sites will price their bids at £0.60 which means you have to pay 60 cents for every bid you place. And since the auction was won at $2, then 200 bids were placed. Therefore, the users spend a total of £120 for a £10 product. In this example, the company made a whopping £110 profit.

By know you understand why these auctions can be risky. Everyone besides the winner loses money. They are great, and you might even find some good deals. However, it is important that you learn the risks before you venture into any auction. A lot of people are unaware of how they work, and they end up losing a lot of money without even winning anything. But know that you are informed of how they work, you can participate in the auctions wisely.