Consumers warned over ‘penny’ auction sitesBeware penny auction sites, says psychologist

22 December 2008

Online bidders should beware potentially addictive ‘penny-auction’ sites, which are akin to gambling, according to a leading UK psychologist.

A penny auction works differently to sites such as eBay where items go to the highest bidder. By comparison penny auctions such as Swoopo, MadBid and BidBoogie allow bidders to raise their stake a penny at a time, bidding against the clock. 

However, each bid costs the consumer significantly more than a penny; Swoopo offers bids at 40p online, which are available in 'BidPacks' of 25, 50, 100, 250 and 500 bids. It says these prices are some of the most competitive rates in the pay-to-bid auction market. The sites claim that by bidding this way the final cost of auction items such as games consoles and even brand new cars remains low.
Dr Mark Griffiths, professor of gambling studies at Nottingham Trent University claims that the sites are tantamount to gambling. 'It's a form of gambling to me as you are putting in lots of money with no guarantee of winning anything,' he says.

Bid for a penny

He believes that the fact that people aren't bidding with 'real money' entices them to bid more than they can afford: 'The first thing that a casino does is to change your money into chips or a smart card. As people don't see it as money it lowers the value of the money. It’s what we psychologists call a "suspension of judgement".'

The same tactics, he claims, are being deployed used by penny auction sites.

Trading standards representatives also expressed concerns over the penny auction sites. 'Consumers can't be sure how much they are spending and there's no guarantee they'll win anything, which is a concern especially in this time of credit crunch,' said Tony Northcott, a spokesperson for the Trading Standards Institute. 'I'd advise people to set a limit on how much to spend the same as if they're gambling.'

Online gambling

The Gambling Commission says that it 'is not convinced that "penny auction sites" amount to the provision of facilities for gambling under the Gambling Act 2005.'

Penny auction site Swoopo has over 700,000 users in the UK making it the third most popular UK auction site behind eBay and GumTree according to Nielsen/NetRatings. MadBid has 114,000 visitors and BidBoogie 15,000.

Penny auctions take their name from the sales of foreclosed farms in America during the Great Depression. Farmers resented the foreclosures and when they heard about an upcoming auction, they would gather on the day of the auction and make it clear to officials and potential bidders that bids from outside the farm community were not welcome. Someone in the crowd would start it off at fifteen cents or so, and it rarely got beyond a few dollars before the bidding stopped and the auctioneer would close the sale.

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