Ponzi-Like Bidding Scheme

Just for fun:  There is a retail bidding site QuiBids which has received a bit of press in the US recently.   The attraction is that they offer products (such as ipads) for, say, an average price of $30-50 (whatever the highest bid is).    One may wonder how this works.

Most auctions are “penny auctions”, meaning that each bid placed on an item increments the price by $0.01.   Prospective buyers pay for each bid they put forward on an item.   In fact, the company charges $0.60 / bid.   So with an end-auction price of, say, $50, the ipad has brought in $3000, because there were 5000 bids to achieve that price.  Wow, these guys are making a lot of money in terms of % markup!

The bidding session gets prolonged by ~10 seconds each time a bid is made in the last seconds.   Basically, it seems to me that the winner is the person in the pool of bidders that has not exhausted his prepaid bids or otherwise given up.

Since one can see the bidder with the top bid in real-time as the end-game bidding occurs, perhaps one could game it, observing the timeseries of bids each participant has placed and come up with a view on likelihood of having reached their bidding limit.   At that point one would start testing by putting in a bid and determine who is left.

If the gaming commission understood what they are doing here, suspect they would have to get a gambling license.    Interesting “not-quite-a-scam” business concept.   I have to think that eventually most participants, not having won anything will discontinue with the site.

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2 Comments

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2 responses to “Ponzi-Like Bidding Scheme

  1. Jud

    “Not-quite-a-scam” is probably used a little too loosely. These sites suffer from an initial takeoff period where users don’t know about them, and therefore, iPads can go for <$5.00 because there are no bidders.

    The way a lot of these sites mitigate this is to just bid on items themselves, since they still collect a premium even if they win their own auctions. Its a business model that allows for a few non-scam sites, but the margins are too high when you don't have to ship any product, leading to a lot of scam sites where real "bidders" never win.

    • tr8dr

      Yes, I’m sure the temptation would be there for an employee, for instance, to win the bid. But then they’ll want to milk this as far as it can go, so given the huge markup they are earning it is best to make sure that there are winners.

      I would not be surprised if they don’t step in and put in bids themselves to compete against an item that is underbid. Keeping the # of auctioned items low enough and ensuring that they select hot items means that they attract enough bids to cover item cost + a very sig margin.

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