Last week the Washington Post had a column on Swoopo in which writer Mark Gimein was highly critical of the penny auction website, calling it, "...the crack cocaine of online shopping sites." Gimein found Swoopo while doing an online search for discounted laptops and after studying it, concluded that Swoopo is evil and is taking advantage of consumers who are unaware of the concept of "sunk cost" and enticed to bid more because of it.
Gimein cites several studies in behavioral economics and game theory, all of which are highly applicable to bid-fee auctions like the penny auctions found on Swoopo. However, instead of driving deeper into how users on penny auction sites interact, he concludes that these sites are evil.
Gimein writes, "And the bigger Swoopo gets, the worse it will be. The more people sign on to bid, the lower your chances become..." While this is true, Gimein fails to mention that there are now dozens of penny auction sites open to players in the US - click here for a good directory - and that many of these sites offer a similar bidding opportunity.
However, the reason why users tend to over-saturate Swoopo while there are better deals to be had on less popular sites is due to several factors which will be the title of a later post I intend to call The Penny Auction Paradox. In short, the more users, the more secure a site appears (due to "herd mentality"), but the higher the price for the auctioned item. Users are paying a premium for the security of knowing they are using a reliable website as deemed by their peers.
In conclusion, Gimein offers his gut reaction to an industry he spent very little time trying to understand. I felt very much the same way he did when I first saw Swoopo. My initial reaction was, "Wow, how can this stuff be going for so cheap," and my second reaction was, "Wow, Swoopo is making so much money." However, now I see there are many complexities to the industry that are not captured by either of these reactions nor in Gimein's article. Hopefully some of our posts here on Penny Auction Insider have started to shed light on the interesting and complex world of penny auctions. Some of what we have to say about penny auctions is positive and some of it is negative, but ultimately there are exciting issues surrounding penny auctions that we would like to explore further. Gimein is free to conclude that these sites are not a good deal for him, and I expect he will never bid on Swoopo, BidCactus or any of the other penny auction sites. However, there are people who are bidding and some of these people are walking away with incredible deals.