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Thu Apr 19, 2012, 12:28 PM

Penny Auctions and the Dollar Auction

For folks who have seen the national TV advertising for Quibids.com and similar online "auction" sites and wondered how someone could claim on TV to sell new Ipads for $20 and such...

A racket like quibids sells you "bids" for $0.60. Each bid raises the bid-price one increment, which is one cent. When QuiBids shows a new iPad ($499 retail) selling for $22.54 it was won for the grand total of 2,254 one cent bids (or $22.54) which actually cost 60 cents each which means that people, in total, paid $1352.40 total to try to get the one item.

That's great for the winner but $1300+ lost for the combined losers. It is as much like like a raffle as an auction. A raffle ticket costs $0.60. Maybe you win. Maybe you don't. One winner. Many losers.

This kind of "auction" where losing bids cost the bidder money is an example of an economic anomaly where, in theory, the bidding would never stop.

Classic example: The Dollar Auction. Try this at a party (if you never want to see your friends again)

I will sell a one dollar bill to the high bidder. Bidding opens at one cent.
The winning bidder pays me their bid and gets the dollar.
The second highest bidder pays me their bid and gets nothing.
(No other bidders but the top two are committed.)

Okay, do you bid one cent for the dollar? One cent for a dollar sounds good, but if someone bids two cents then you have to pay one cent for nothing. Rather than give up and lose one cent, why not now bid three cents? That's cheap for a dollar and if you quit now you're out a penny. Might as well bid three cents.

And so on. Let's say you bid up to $0.98 and someone else bids $0.99. Do you bid a dollar? Well, you can either lose $0.98 for nothing or try to buy a dollar for a dollar. Let's say the dollar is bid up to $5.00. Do you accept a loss of $4.99 or bid $5.01? (Notice that the auctioneer is already getting $10 for that dollar, with no end in sight.)

Anyway, Quibids is all over my TV, as well as online stock-trading companies, and ads for the Lotto... but they outlawed online poker!

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Arrow 5 replies Author Time Post
Reply Penny Auctions and the Dollar Auction (Original post)
cthulu2016 Apr 2012 OP
PoliticAverse Apr 2012 #1
bongbong Apr 2012 #2
RebelOne Apr 2012 #3
cthulu2016 Apr 2012 #5
fishwax Apr 2012 #4

Response to cthulu2016 (Original post)

Thu Apr 19, 2012, 12:37 PM

1. In this world there are illegal scams but also legal ones... n/t

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Response to cthulu2016 (Original post)

Thu Apr 19, 2012, 04:07 PM

2. Libertarian paradise

 

The sheep get sheared and/or eaten by the right-wing wolves, and then blame their woes on Liberals.

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Response to cthulu2016 (Original post)

Thu Apr 19, 2012, 04:18 PM

3. Thanks for the explanation.

I have always wondered about those auction sites as they sounded too good to be legit.

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Response to RebelOne (Reply #3)

Thu Apr 19, 2012, 09:20 PM

5. I got some pop-up ad today that was the last straw

so I googled around out of curiosity.

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Response to cthulu2016 (Original post)

Thu Apr 19, 2012, 04:22 PM

4. interesting

I've seen those ads for quibids, but didn't know anything about it other than that once when I visited the site out of curiosity after seeing all the ads I saw something about "free bids." So I assumed that it cost money to bid, and didn't bother to look into it further. I didn't realize that the price of bidding was per increment. I appreciate the clear and thorough explanation. (Not that I would have ever actually joined, but now my curiosity is met.)

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