Bidding on Something You’ll Probably Never Win-and Paying for the Privilege

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There seem to be endless new ways of acquiring goods. Instead of heading into a store and plunking down cash, consumers are buying online, or bartering via sites like Swaptree, or joining clubs that share cars or other goods rather than purchase them outright. They are also bidding for goods in online auctions—and many consumers are so eager to nab a bargain that they’re willing to pay to place a bid.

A NY Times story focuses on such online auctions hosted by the website Swoopo. The idea behind the site is that if you spend a little (a mere 60 cents for each bid), there’s a potentially huge upside, in the form of TVs, laptops, home appliances, and other electronics that may eventually sell at a tiny fraction of the retail price.

While figuring out what to bid, the equation that takes place in one’s mind is fascinating. You obviously don’t want to have to place multiple bids—because you’re charged 60 cents each time you bid. And you obviously only want to enter into auctions you really plan on winning (otherwise, it’s just money down the drain with nothing to show for it). Both of these forces seem to push a participant to place a higher bid, in order to increase the chances of winning and of not having to submit (and pay for) several bids. On the other hand, you don’t want to pay more than you need to, defeating the purpose of entering the auction in the first place. In any event, Swoopo itself is making a lot of money, even if the items it’s selling are going for dirt cheap. From the Times:

This month, a new 40-inch Samsung TV, which normally sells for $1,500, sold for $67.92, and a white LG refrigerator with a price tag of $1,498 went for a cool $77.90.

But there is a catch, of course: Swoopo users are charged 60 cents every time they bid, and those charges add up quickly.

The complicated machinations behind Swoopo and its online imitators are drawing attention from critics who say they prey on human foibles, like the tendency of people to overlook the small increments of money they spend to pursue alluring discounts.

These critics also say that players face long odds in Swoopo’s auctions, where they must compete against people in the United States, Britain and Germany. And they say that Swoopo is making a nice profit on each item when all the bidding fees are tallied.

Competing bidders spent a cumulative $2,337 in their losing effort to buy the $1,498 refrigerator, for example.