Friday, July 24, 2009

Countries aren't the only entities that print their own money, penny auctions do it too!

Bidcactus is a decent site, they've been around for a while and they seem to be stable. However, they offer a fairly limited product list and only run 8 auctions at a time and these 8 auctions are often dominated by bidpacks and giftcards. Earlier today 5 of the 8 auctions were for bidpacks, leading us here at Penny Auction Insider to joke about Bidcactus "printing its own money." Penny auction sites are getting people to spend money to buy bidpacks that cost the company nothing to produce. This is pure cash inflow for the penny auction sites in much the same way that the US Government can turn on the printing press and start churning out cold hard cash.

This leads to the issue of credibility and reliability. US dollars are a fiat money, ie they only have value because they are backed by faith in the US Government. People are willing to accept compensation for services rendered in dollars and stores are willing to trade goods for dollars, not because they want dollars or because those green pieces of paper have special meaning to them, but because the rest of society will also accept those dollars. This is a faith based system. If people feared that the US government might become unstable they would have serious concerns about their dollars. With penny auctions, people who have bids in their account have faith that the site they purchased from will not go bankrupt, discount the value of bids or otherwise hurt the value of their investment in bids. This is a strong argument in favor of participating in penny auctions only at the most reputable companies with the smallest likelihood of running into trouble. However, it is at these heavily trafficked sites where bidders also face the most competition.

Oh shucks, it looks like that with penny auctions, like in finance, there really is no free lunch - if you want a higher return, you're going to have to accept higher risk.

On Friday morning 5 of Bidcactus's 8 auctions were bidpacks. I would like to see a penny auction site go for all bidpacks and see how long people stick around before realizing the only thing they can use their bids for is winning more bids. In Bidcactus's defense, I have noticed that one of the items users ask for the most is bidpacks.

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