Holiday Shopping: Penny Auctions

The internet is filled with penny auction sites. These sites promise users a fair auction experience, where perseverance will lead to a good deal. It is not uncommon for penny auction operators to offer deals like 95 percent off a top of the line computer or some other desirable electronic item, and all you have to do is bid in pennies.  But are penny auctions really just websites that want to five away normally high ticket items to faithful bidders, or are they simply low ticket scams?

What is a Penny Auction?

During a penny auction, the host will post an item for sale and consumers pay to bid on the item. In addition to paying to gain entry into the bid, participants must also pay while engaged in the bid. Unlike traditional auctions, penny auctions require participants put money down on an item even if they do not walk away with it.

In order to win an item, a user would have to purchase a specific number of bids, like 75 bids for $75. When the auction begins, the price of the item is at zero and is bumped up a penny, which resets the bidding clock. The lucky winner is the last person to make the highest bid once the timer runs out.


The practice of penny auctions has come under scrutiny in the past few years. The Federal Trade Commission issued a consumer alert, describing the pitfalls of penny auctions. The FTC warns that penny auction websites are not designed to make money from the sale of a particular item, but from the number of bids purchased to auction that particular item. For example, a laptop that sells for $75, actually represents 7,500 bids at one dollar a bid. This translates to about a $7,500 pay day for the site.

The FTC also warns that some penny auctions are rigged. These auctions will use bid bots and human shills to automatically drive up bid prices, which keeps the clock ticking and causes a bidding war to maximize auction profits. Despite FTC warnings, penny auctions are still wildly popular and can make auction runners a lot of profit. Learn how to start your own penny auction site with reputable merchant account processing from a company like eMerchantBroker, and get in on the action!!


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