How good a deal are penny auctions?

October 18, 2011 7:52:07 PM PDT
Penny auction websites advertise big bargains with the lucky winners walking off with televisions, small kitchen appliances and other items for a fraction of their retail cost.

Prices can start as low as zero and each bid increases the price only a penny or two, so the deals look amazing.

Imagine getting a new Apple iPad today for just $23.74. An ad for the penny auction site QuiBids and the ad for Happy Bid Day make it look easy to get expensive items for just a few dollars. Consumer Reports checked out these and other penny auction sites.

On the site QuiBids Consumer Reports checked to see what it takes to win a $600 Samsung tablet. At first, Consumer Reports was the highest bidder. But as the auction clock approached zero, there was a lot of competition. That's when a big bidding war started. The sites can make a lot of money when there's a bidding war because they charge you every time you bid.

A typical bid costs 50 cents to $1 and the site keeps your money whether you win or lose. So if the winning price is $100 and each bid costs 50 cents, the site could bring in as much as $5,000.

QuiBids told Consumer Reports it loses money on about half of its auctions and that "much of the profit from profitable auctions goes toward covering the losses from the unprofitable auctions."

The founder of a website called Penny Auction Watch says you can get caught up in the game and lose your head. One way penny auction sites typically suck you in is by adding seconds to the clock after every bid. So with auctions for popular items like electronics, bidders keep jumping back in hoping to win.

Consumer Reports' advises buyer beware! Though you might get a good deal, you might also lose a lot of money. If you don't win the auction, some sites will allow you to apply some or all the money you've spent bidding toward buying the item at the site's full price. But Consumer Reports says that may not be a good deal since frequently you could find the item for less from a retailer. For more on penny auctions:

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