Penny Auction Scams

Penny auction scams are rampant and insidious. Don’t gamble away your hard-earned money.

Penny auction scam websites are gambling sites, not shopping.

Penny auction websites purport to offer consumer goods at steeply discounted prices. They advertise pretty much everywhere that consumers can save up to 95% off of retail prices on popular electronics and other consumer goods. With prices that good many consumers ask me if penny auctions are a scam. If you are shopping rather than gambling then the answer is an unabashed and resounding yes. Penny auctions are a scam. There is simply no other way to put it. Read on if you disagree with my opinion.

Penny Auction Scam: Reviews on Penny Auctions

If you search for penny auction websites online you will see literally hundreds of websites with what look like positive reviews. Don’t be fooled. Most of the websites posting positive reviews about penny auctions are actually paid advertisements on websites owned, operated, or controlled by penny auction companies or one of their paid affiliates. Those ads and fake reviews are typical marketing practices used by many online businesses and I consider the practice to be a scam. Unfortunately, those fake reviews are just the tip of penny auction scam iceberg.

Penny Auction Scam: How Penny Auctions Work

The penny auction scam works like this. Penny auctions put a consumer product up for “auction” on their websites. Consumers bid on the purchase price of the item while a clock counts down to zero. The bidding starts at $0.01 and raises by another penny every time a consumer (sucker) places a bid. Once a new bid is placed, the clock resets to 20 seconds to allow more bids to occur. Since the clock resets, penny auctions typically go on for hours with 20 or fewer seconds showing on the clock. Eventually the clock expires giving one, and only one, consumer the right to buy the item for pennies on the dollar. It sounds good if you are that one customer that won, but what about the others? What happens to all the money they paid to “bid” on the right to purchase the items?

Let’s do the math. Each bid costs the consumer $0.60. Yes, you read that right. Consumers purchase bids at a rate of $0.60 each. Astounding isn’t it? Now let’s say an item is worth $300.00 and you buy it for $22.00 on a penny auction site after making 200 bids. Those 200 bids cost you $120.00 so you did in fact save money if you win the auction. If you lose the auction you lose all $120.00 you paid for your bids. How can anyone argue with a straight face that such a process isn’t gambling?

More math reveals how the penny auction scam works. To get an item from $0.01 to $22.00 requires bidders to place 2199 bids. At $0.60 each that $300.00 item cost consumers collectively $1319.40. The worst part is not the obscene profit penny auction companies make by selling each product at such an inflated price, however. Remember there are other bidders and they all lost. If the auction had 100 active bidders then they each paid an average of over $22.00 for absolutely nothing.

Under my reading of Utah law, the penny auction business model is plainly considered gambling. The players all paid money for a chance to win something and all the losers walked away with nothing.
That is the definition of gambling. No, I don’t know why the Utah Attorney General allows penny auction scams to operate. Vote for me; I wouldn’t allow it. Many other states have similar gambling laws which is why legitimate contests always allow you to enter without making a purchase. They have to. It is required by law. Because penny auctions have no process for entering to win an auction without paying for the chance it is gambling.

The Penny Auction Scam: QuiBids Response

Not surprisingly, one popular penny auction website, QuiBids, does not consider it’s business model to be gambling. At least not publicly. Instead, QuiBids calls its service “gamification” and argues that their auctions are a game rather than gambling because the QuiBids auctions somehow take “skill” to win. Shame on you QuiBids. Poker takes skill too but if you pay to play it is considered gambling.

Even if the involvement of skill somehow changed the definition of gambling (which it doesn’t), what skill could possibly be required to win a penny auction? Bidders can’t possibly have any insight into when the bidding will stop on a particular item and there isn’t any way to bluff other bidders into giving up. If bidders did have some special system for winning a penny auction that system would have to be called cheating and I doubt QuiBids has ever banned a user for cheating. Sorry QuiBids, this argument doesn’t fly. Your bidding process is pure luck.

Penny auction scam sites also argue their services are not gambling because they offer a “buy it now” option on their products. The buy it now option allows consumers to purchase the item at full price minus the bids they already placed on that item. Nice try, but the penny auction model still reeks of scam. Think about it. Consumers are led to the penny auction websites by representations that the sites are discount shopping outlets. They are drawn to penny auction sites by the promise of saving money on a purchase, not to pay full price or to play games. As a result, the buy it now option actually places the consumer in a lose-lose situation. They either have to walk away from a product they just wasted money and time trying to win or they have to pay full price (or higher). That isn’t a meaningful choice at all. Penny auction sites are basically forcing their bidders to pay full price for an item they were led to believe they could purchase for a steep discounted price. Bait and switch anyone?

Avoiding the Penny Auction Scam

Here is how to avoid the penny auction scam. Don’t bid at penny auctions. Avoiding the scam is that easy. A savvy consumer should simply buy consumer goods from legitimate shopping sites and be done with it. No batteries included. No scam included.

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