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Caution advised when using Penny Auction websites

Caution advised when using ‘Penny Auction’ websites

pennyauctionWhile on social media or using the internet, you may have seen pop-up advertisements for expensive electronics being offered at ridiculously low prices, for example, an iPad for ten dollars. But don’t be fooled, beware.

By clicking on these ‘bait’ advertisements, you are being taken to a variety of online auction websites, often known as ‘penny auctions’, where we recommend you exercise caution as you may find that in the long term you are paying a much higher price to take part.

While these websites are not operating illegally, consumers should realise the chance of obtaining the items at the advertised price are extremely low and it is basically a form of gambling.

Before signing up for these websites, you should consider the total cost to participate in these ‘penny auctions’ and what are your realistic chances of winning an item at less than the true value.

In these online auctions, items are put up for sale for a limited time with very low or no reserves and a fee is charged for each bid placed. A participant may have to bid many times for the one item before the time limit for that auction expires, and the timer is re-set every time a bid is received.

As these sites are ‘pay-per-bid’, you won’t get your bidding fees back if your bid is unsuccessful and all fees are retained by the website operator. While there are a few winners in the process, the numbers of people who miss out are far greater.

At the end of the auction, losing bidders have often paid a substantial amount without any return, so the real winner is the company operating the website which receives a total income for the item that is usually far in excess of its original value.

We urge consumers to think carefully before deciding to take part in these online auctions. Weigh up the odds of winning these items at such very low prices with the amount of money required to lodge enough bids to be successful. In the end, for the vast majority of participants, it may not be a gamble worth taking.

Created 3 June 2014