Shopping, gambling or shambling? Penny auctions

Abstract

On penny auction websites, consumers participate in a game where the winner receives the opportunity to purchase a product for pennies on the dollar and discounts of over 90% are often advertised and recorded. Losers, on the other hand, may easily spend hundreds of dollars and walk away with nothing. For penny auction websites, profit margins over 300% on a single auction are not uncommon. Critics call penny auctions gambling. Proponents call penny auctions entertainment shopping. Either way, this emerging form of ecommerce represents a fascinating area for academic research.

All-pay auctions with pre- and post-bidding options

“…Typical anecdotal stories tell us that a winning bidder may acquire a brand new smartphone for just $50, while the penny auction site collects a total revenue of $2000 from the bidding process. These stories have generated much negative press in academia, newspapers and blogs, and critics have basically labeled penny auctions as online gambling (Robinson, Giebelhausen, & Cotte, 2013;USA Today, 2011;NY Times, 2009a, 2009bGuina, 2009). In an extreme example, a class-action lawsuit has been filed against quibids.com, claiming that it is more akin to a gambling website than an auction website (BusinessWire, 2010).…”