Penny Auction Scams : Part I
For everything that involves money, you will see fraud and scams. Penny Auctions are no different. For newbies, this is a must-read article on the various scams that are out there. You want to learn to avoid it in order not to lose money to these. Oh and although it’s April Fools today, this article is not a joke! We want to education you!
While the Penny Auction industry grows, back in the days when there’s Swoopo that turned out to be a huge success, copy cat Penny Auction sites soon followed. Today, you see no less than a few dozen Penny Auction web sites operating. Penny Auctions became a profitable business model for operators who could get enough bidders to their site. After all, you could sell an Apple iPad for $164.00 to one individual, but in fact, you are pocketing $15,000 of profit from doing so. That’s great for business. For new Penny Auctions operators, they may not be getting as much bidders to their web sites, and as a result, they risk losing money. At the same time, players want to get smarter and want to game the system to win more products for less. As a result, you see a variety of scams emerging from both sides. Let’s look at the scams from the operator’s side:
Penny Auction Operators Scams (Web Sites)
If a Penny Auction for a $500 is bid by very few individuals, that results in the total cost of bids worth only $100, the Penny Auction operator lost $400. With Penny Auction web sites that are starting, this is a very realistic scenario. Now, what attracts bidders to a Penny Auction site include its products and also the number of auctions. After all, who’d want to visit a Penny Auction site with one auction a day. You multiply the money losing scenario by 10 each day, and quickly the Penny Auction site will probably close down. To counter this, the Penny Auction owners, their friends, or their employees could start placing bids on their own items in an attempt to promote a bidding war with real bidders. In turn the owner can achieve a number of objectives:
- Bids will be increased to cover at a minimum the cost of the product
- Artificially increase the number of real bids (and thus the final sale price) needed to win the item
- By extending the bid time, more bidders may participate in the auction, leading to more external bids, and ultimately profit for the owner.
Similar to shill bidding where fake bids are placed by the Penny Auction owner and its employee, “bidding bots” are robots or automated scripts that are build to place fake bids without human intervention. The objective of a bidding bot is the same, to increase the profit for the owner by creating a bidding war with legitimate bidders. Because using human to watch every single auction is difficult and costly, using bidding bots are more cost effective.
Some lesser known Penny Auction sites have reported advertise goods that turned out to be something totally different. For instance, one web site advertises auctions for Gucci handbags. After bidders were successfully winning the items, the handbags delivered were imitations or counterfeited goods (and therefore the goods are of much lesser value and quality).
Not Delivering the Goods
Before bidders can bid on an auction, they would need to buy bids which means they pay the Penny Auction site upfront. After winning the item, the Penny Auction site would ship the winning item to the bidder. In some cases, the items were never shipped. It maybe due to theft in transit, but without proper tracking and adequate customer service, some customers would never get to see their items.
Credit/Debit Card Fraud
Most Penny Auction sites accept credit cards for payment, and in many cases, the bidder agrees to the owner charging their credit card without repeat validation. Therefore, the potential for misuse of your credit card exists where a charge may occur without you knowing. By the time you read your credit card statement, the perpetrator could be long gone.
So what can you do?
Pick a Penny Auction Site Carefully
You need to find Penny Auction sites that are legitimate. Usually new sites are attractive to bidders because they don’t have much competition. However, at the same time, they maybe facing all of the risks we discussed above. For these reasons, bidders should consider using the more reputable auction sites, which usually translates to busier sites (with more visitors). Check out our other articles to find out who you should be choosing.
Look for Trust / Accreditation Such as the Better Business Bureau
When a site is affiliated by the Better Business Bureau, you can usually go to them and check their business profile. BBB will also grade each business, measuring complains and resolutions made by the business. Typically businesses with an ‘A’ rating are good to deal with.