‘Penny Auction’ Sites Offer Big Bargains

Mercury News:

At a time when we’re all looking for bargains, is there a catch to buying a $150 Nikon Coolpix digital camera for 34 cents? Or nabbing a $699 Apple 16GB iPhone for $8.06?

There is: While you stand to get a great bargain, you could be bidding against several thousand others in an online auction for one item, and each time you place a bid, it will cost anywhere from 60 cents to $1.

E-commerce is taking on a different spin with sites such as Swoopo and GoBid that appeal to the bargain hunter with a competitive drive. The giveaway prices on name-brand products, the limited and timed offerings, strategy play and fast pace attract shoppers willing to bid money for the chance to buy something at a fraction of its retail cost.

How do these auctions differ from those on eBay? The sites are selling the merchandise, whereas eBay is a place where sellers and buyers meet – it holds no inventory.

But the biggest difference is that to participate in a penny auction, shoppers must buy a bundle of bids and use one every time they raise their virtual paddle. Bids cost 60 cents to $1 each and are bought in packs of 10 to 700, depending on the site.

The auction companies make much of their money not from sales of merchandise but from the purchase of these bids.

While critics have questioned this form of e-commerce as a blink away from gambling, others have called it a smart business model for the Web at a time when new moneymaking ideas are scarce.

Photo by Swoopo.

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