What to Expect on Penny Auction Sites

PHOTO: QuiBids is a website where you buy brand new products for less than their original price.
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Everyone loves a deal, but how good of a deal are the online stores known as penny auction sites? Many users say they offer addictive entertainment. But states are beginning to investigate and regulate sites that market themselves as treasure troves of deep discounts after consumer complaints about spending too much without getting goods.

In the auctions, users pay a small sum for each bid on a variety of consumer auction items, including high-ticket items such as computers and flat-screen televisions. Each time a user bids on an item the price increases by a penny or two.

The twist is that if more than one user bids on an item before an item is sold, each bid adds seconds to the countdown clock, increasing anticipation of when the countdown will end -- and making it impossible to know if your bid will be the last and winning bid. Users can also choose automatic bidding options on a number of sites, choosing their price and bid threshold ahead of time so they are not required to stay glued to their computers.

That can get expensive for the bidders since they have to pay -- usually 50 or 60 cents for each bid. But the sites can reap huge profits on the proceeds of the bidding and their devoted following, as reported by the Wall Street Journal this week.

For example, an Apple iPod Touch 32 GB sold Aug. 17 on QuiBids for $18.88 -- a deal considering the retail price is about $250. With each bid costing 60 cents the auction company could collect $1,132 in bid fees, not factoring in discounted bids that it auctions to bidders, which, of course, generate their own auction fees.

Georgia now requires penny auction website owners to register for a license with the state's Auctioneers Commission. Earlier this summer, the governor's Office of Consumer Protection entered a settlement with penny auction company Wavee, in part because it did not have an auctioneer's license. The settlement required Wavee to cease operating, pay over $200,000 in consumer restitution, pay a $35,000 civil penalty, and pay $15,000 in administrative expenses.

Nicholas Boccio, an enthusiast and advocate for the industry, said there is a problem with the Georgia law's definition of an auction. He said the bidding component of an auction is similar to a game in which each person pays for bids, or participation fees.

"The Georgia laws are just too archaic to regulate penny auctions at their present state," he said. Boccio also disagrees with arguments that the sites conduct illegal gambling.

"You're not betting or wagering anything in an auction. You place the bid you paid for. It's not paid for a pool that you get back if you win. It's for an item you hope to pay for," he said. "And when you win, you still have to pay for the prize. Some sites are specifically not gambling because at any point you can take any money you invested in an auction to pay for the item. In some worst cases, you'll pay the retail cost plus shipping."

Boccio runs a penny auction forum called Pennyburners.com and an internet radio show called Penny Talk Radio.

Boccio, who said he has participated in about 100 penny auctions and won about 30, said he no longer participates in auctions in order to maintain the integrity of his forum. His site lists active penny sites and aims to distinguish between "legitimate" sites and those that misrepresent themselves.

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