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{{auction}}
A '''bidding fee auction''', also called a '''penny auction''', is a type of [[all-pay auction]] in which all participants must pay a non-refundable fee to place each small incremental bid. The auction is extended each time a new bid is placed, typically by ten to twenty seconds. Without new bids the last participant to have placed a bid wins the item and also pays the final bid price. The auctioneer makes money in two ways: the fees for each bid and the payment for the winning bid, totalling typically significantly more than the value of the item.<ref name="reviewopedia">{{cite web|title=QuiBids.com Reviews – Legit or Scam?|url=http://reviewopedia.com/workathome/quibids-com-reviews-is-quibids-a-scam/|publisher=Reviewopedia.com|accessdate=13 November 2012}}</ref> Such auctions are typically held over the [[Internet]], rather than in person.▼
{{For|'Penny auction' in context of foreclosure, in which participants collectively discourage competitive bidding in order to force the sale of a foreclosed property at a low price|Penny auction (foreclosure)}}
▲A '''bidding fee auction''', also called a '''penny auction''', is a type of [[all-pay auction]] in which all participants must pay a non-refundable fee to place each small incremental bid. The auction is extended each time a new bid is placed, typically by ten10 to twenty20 seconds. WithoutOnce newtime bidsexpires thewithout lasta participantnew tobid havebeing placed, athe bidlast bidder wins the itemauction and also pays the finalamount bidof pricethat bid. The auctioneer makesprofits moneyfrom in two ways:both the fees forcharged eachto bidplace bids and the payment for the winning bid,; these combined totallingrevenues typicallyfrequently significantlytotal more than the value of the item being sold.<ref name="reviewopedia">{{cite web|title=QuiBids.com Reviews – Legit or Scam?|url=http://reviewopedia.com/workathome/quibids-com-reviews-is-quibids-a-scam/|publisher=Reviewopedia.com|accessdateaccess-date=13 November 2012|archive-date=1 February 2013|archive-url=https://archive.today/20130201080830/http://reviewopedia.com/workathome/quibids-com-reviews-is-quibids-a-scam/|url-status=dead}}</ref> Empirical evidence suggests that revenues from these auctions exceeds theoretical predictions for rational agents. This has been credited to the [[Sunk cost|sunk cost fallacy]].<ref>{{Cite journal| doi = 10.1093/restud/rdv037| issn = 0034-6527| volume = 83| issue = 1| pages = 58–86| last = Augenblick| first = Ned| title = The Sunk-Cost Fallacy in Penny Auctions| journal = The Review of Economic Studies| accessdate = 2021-03-26| date = 2016-01-01| url = https://doi.org/10.1093/restud/rdv037| doi-access = }}</ref> Such auctions are typically held over the [[Internet]], rather than in person.
 
==How it works==
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For example, if an item worth 1,000 currency units (dollars, euros, etc.) sells at a final price of 60, and a bid costing 1 raises the price of the item by 0.01, the auctioneer receives 6,000 for the 6,000 bids and 60 as the final price, a total of 6,060, a profit of 5,060. If the winning bidder used 150 bids in the process, they would have paid 150 for the bids plus 60 for the final price, a total of 210 and a saving of 790. All the other, losing, bidders collectively paid 5,850 and received nothing.
 
A 2010 ''[[TechCrunch]]'' article (Julyabout 26,penny 2010)auction onsite [[MadBid]], one such site, called this business model "a license to print money."<ref name="tc">[{{cite web|url=https://techcrunch.com/2010/07/26/penny-auction-site-madbid-secures-4m-funding-from-atomico-ventures/ |title=Penny auction site MadBid secures £4m funding from Atomico Ventures] |publisher=Techcrunch.com |date=2020-03-30 |access-date=2020-04-04}}</ref> ByEighteen contrastmonths inlater, ana articlereporter on Madbid,for ''The Guardian'' (28 January 2012) commentswrote, "legions of penny auction sites have folded, including [[Swoopo]], Rapid Bargain and Bid Boogie." The reporter spoke with a representative for MadBid, who denied that the company made false claims and who described the company as having created "a fun shopping experience that requires skill and strategy to land bargains."<ref>{{cite web|last1=King|first1=Mark|title=How penny auction websites can leave you with a hole in your pocket|url=https://www.theguardian.com/money/2012/jan/28/penny-auction-websites|publisherwork=The Guardian|accessdatedate=28 January 2012|access-date=25 November 2014}}</ref>
 
==Criticism==
Due to the possibility of participants spending asignificant lotamounts of money and still losing an auction, or ultimately spending more than the retail value of the item they end up winning, some analysts have criticized the model or compared it to [[gambling]], even when operating without fraud.<ref name=codinghorror.com>{{cite web|title=Profitable Until Deemed Illegal|date=11 December 2008|url=http://blog.codinghorror.com/profitable-until-deemed-illegal/|publisher=Coding Horror|accessdateaccess-date=25 November 2014}}</ref><ref>{{cite news| url=https://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100684.html | worknewspaper=The Washington Post | title=The Big Money: The Pennies Add Up at Swoopo.com | first=Mark | last=Gimein | date=2009-07-12 | accessdateaccess-date=2010-04-26}}</ref><ref>{{cite web|title=Penny Auctions: They're Gambling
|date=25 May 2009|url=https://blog.codinghorror.com/penny-auctions-theyre-gambling/|publisher=Coding Horror|accessdateaccess-date=18 June 2017}}</ref><ref>{{Cite web|url=http://technologizer.com/2008/09/17/is-swoopo-nothing-more-than-a-well-designed-gimmick/|title = Is Swoopo Nothing More Than a Well-Designed Gimmick?|date = 17 September 2008}}</ref><ref name="gambling-msnbc">[{{cite web|url=http://redtape.msnbc.msn.com/_news/2011/02/18/6345481-an-ipad-for-282-or-illegal-gambling |archive-url=https://web.archive.org/web/20120402073025/http://redtape.msnbc.msn.com/_news/2011/02/18/6345481-an-ipad-for-282-or-illegal-gambling |url-status=dead |archive-date=2012-04-02 |title=An iPad for $2.82, or illegal gambling?] |date=2012-04-02 |access-date=2020-04-04}}</ref> The [[Better Business Bureau]] warns consumers, "although not all penny auction sites are scams, some are being investigated as online gambling. BBB recommends you ... know exactly how the bidding works, set a limit for yourself, and be prepared to walk away before you go over that limit."<ref name="scams-bbb">[{{cite web|url=http://www.bbb.org/us/article/bbb-names-top-ten-scams-of-2011-31711 |archive-url=https://web.archive.org/web/20120108182818/http://www.bbb.org/us/article/bbb-names-top-ten-scams-of-2011-31711 |url-status=dead |archive-date=2012-01-08 |title=BBB Names Top Ten Scams of 2011] |access-date=2020-04-04}}</ref> A penny auction may make the seller a far higher price than the item value.<ref name="reviewopedia"/>
Potential [[fraud]]ulent practices which can disadvantage buyers even more include shill bidding, where a human or software (bot) bidder covertly acting for the seller places bids which make legitimate bidders continue bidding where otherwise the auction would end, and simply not sending out goods for which a price, albeit low, has been paid.
Some bidding fee auction sites have been shut down by state governments after investigations. Wavee US, LLC, settled with the Governor's Office of Consumer Protection in Georgia and agreed to close its website after the office received complaints about merchandise not being shipped in a timely fashion. Washington state shut down PennyBiddr after a lawsuit in which the state accused PennyBiddr of using [[shill bidding]] to drive up prices and extend auctions. In addition, several auction sites which claimed to be [[Better Business Bureau]] "Accredited" were not members of the BBB or had poor ratings with the BBB.<ref name="consumerman">[{{cite web|url=http://today.msnbc.msn.com/id/44010040/ns/today-today_news/t/most-online-penny-auctions-just-dont-make-any-sense/ |archive-url=https://web.archive.org/web/20120502081923/http://today.msnbc.msn.com/id/44010040/ns/today-today_news/t/most-online-penny-auctions-just-dont-make-any-sense/ |url-status=dead |archive-date=2012-05-02 |title=Most online penny auctions just don't make any sense] |access-date=2020-04-04}}</ref>▼
 
▲Some bidding fee auction sites have been shut down by state governments after investigations. Wavee US, LLC, settled with the Governor's Office of Consumer Protection in Georgia and agreed to close its website after the office received complaints about merchandise not being shipped in a timely fashion. Washington state shut down PennyBiddr after a lawsuit in which the state accused PennyBiddr of using [[shill bidding]] to drive up prices and extend auctions. In addition, several auction sites which claimed to be [[Better Business Bureau]] "Accredited" were not members of the BBB or had poor ratings with the BBB.<ref name="consumerman">[https://web.archive.org/web/20120502081923/http://today.msnbc.msn.com/id/44010040/ns/today-today_news/t/most-online-penny-auctions-just-dont-make-any-sense/ Most online penny auctions just don't make any sense]</ref>
 
==See also==
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{{DEFAULTSORT:Bidding fee auction}}
[[Category:AuctionsAll-pay auction]]
[[Category:Business models]]
[[Category:Online auction websites]]
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