You see the ads on TV. You see stuff online about it. You hear co-workers, family members and friends talking about it. What is it? Penny Auctions. No doubt you, like most folks have asked questions like these: What in the world is a penny auction? How do they work? Are they legal? Are suckers just being scammed out of their hard-earned money or is it a legitimate enterprise?
Well, to start, auctions have been around since people have had stuff to sell away to other people. Rather than just selling something for a set price, an auction lets everyone who wants something determine how much it is really worth by individually bidding up the price. It's very competitive and a lot of fun to watch. Auctions are even used for some types of assets bought and sold on Wall Street!
The use of the internet has fueled the boom in penny auctions because it allows people all over the world to participate and remain anonymous. The other bidders could be your next door neighbor, someone in a neighboring state or completely on the other side of the world. With the click of a button they can be bidding on cash, jewelry, TV's, and even iPads. Just about anything legal is usually put up for bid..
Penny auctions function pretty much like any other type of auction. You have an item for sale and everyone bidding wants to get that item. Some more than others. Bids are usually purchased ahead of time so that the auction runs smoothly. People use up their bids by simply clicking on the bid button with their mouse. Each time someone bids, the price on the item goes up by, you guessed it, one penny. Thus the name, penny auctions. A timer is running on each auction and every time someone bids the timer resets another 15-20 seconds or so. The last person to bid before the timer hits zero wins the auction.
Now why would anyone want to bid online for something that they can simply drive down to their local retail store and get it with no fuss no muss? Two words: Price and Fun. Auction winners usually pay around 50% to 90% less than what they would pay at a retail store. Plus the competitive nature of it is a lot more fun than taking a drive down to your crowded local retail shop and standing in line for checkout. If what you wanted is even in stock when you get there.
Is it gambling? Some think so, but the government has ruled that it is not. The illegal ones are quickly shut down by Uncle Sam. Usually they have something else going on with theirs, totally unrelated to a real penny auction. Because a bidder's skill is usually a key factor in them winning and most penny auctions place limits on the number of times any one person can win in any one month, that's enough to keep the government happy.
So as you can see, penny auctions are here to stay. As Martha Stewart famously said: "And that's a good thing".
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