News and Views
How penny auction websites can leave you with a hole in your pocket
Somewhere in the UK a person going by the name of “minga60″ must be feeling gutted. He recently spent more than £200 trying to win a 32” LG flatscreen TV at penny auction website Madbid.com, only to see a rival bidder steal in and win it at the last second.
Madbid.com, and rivals such as Bid Budgie and Fastbidding.com, are at the forefront of an explosion in penny auction websites in the UK, with shoppers enticed by gaudy adverts boasting that Sony PlayStations have sold for a fiver or MacBook Pros for £90. But a closer look reveals that consumers can end up with nothing to show for it.
Unlike eBay, where bids are free and you only pay the price at which you win an item, participants in a penny auction must pay to place each bid as well as the final price of an item should they win it. Of course, there can be only one winner so everyone else is left out of pocket.
At Madbid.com it works like this. To place a bid you need to buy credits sold in blocks typically costing £9.99 for 80 or £374.99 for 3,750, meaning individual credits cost 10p-12.5p. You need up to six credits to make a single bid. This means that bidding on some items can cost as much as 75p each time. Each bid raises the auction price of an item by 1p and at the same time extends the closing time of the auction by up to 60 seconds.
Things are even more confusing at FastBidding.com, where some auctions close temporarily and there are different styles of auction, including ones that offer cashback, “equal bid” auctions and “lowest unique bid” auctions. At sites such as this, beginners need to tread even more carefully.
At BidBudgie.co.uk, where everything is apparently “going cheep”, users must make the lowest unique bid to win – an incredibly confusing system where you must ensure you are the only person who has registered a bid at, say, 3p. The trick is that rivals can also bid 3p to ensure your bid is no longer unique, then enter their own unique bid of, say, 4p and take the lead. Bids cost money unless you enter a free auction – to win credit that can only be used on BidBudgie.
With penny auction websites everyone helps ramp up the price and, at some sites, as long as people keep bidding the auction never ends. If you win, how much you eventually pay depends on how many credits it took to place each bid, how many times you bid, and the eventual sale price.
We took a detailed look at the bidding history for Madbid’s recent LG TV auction, which required four credits per bid. We found that 79 people placed bids in total and the winner spent £217.60 on bids to win the TV – at great cost to rival bidders. Thirty nine of them bid once and so lost only 40p (assuming they bought credits at the cheapest rate of 10p per credit); 10 people lost 80p after making two bids; while 19 people wasted between £1.20 and £4.80.
Nine people spent between £5 and £30, but the failed bidder who lost the most cash was minga60, who wasted £211.60 by placing 529 bids.
Madbid can make a lot more than the sale price on each item. On the LG TV, Madbid could have raked in as much as £612, assuming all bidders spent 10p to buy each credit. That’s £162 more than the recommended retail price of £450.
Similarly, we have calculated that by attracting 252,907 bids Madbid could have made £151,744.20 on an Audi A3 Sportback that had an RRP of £18,790 – 600% more than the cost of the car.
But it often loses money too. A pair of hair tongs worth £40 recently sold for 25p, making Madbid as little as £10 from the 25 bids it attracted. A men’s Fila watch worth £139 attracted only 23 bids, worth as little as £9.20 to the website.