Shopping for Gamblers

How can Swoopo, the online auction site, rake in $2,151 selling a laptop for $35.86? Easy: set an opening price of $0.01 (almost free!), then let each new bidder top the last by only a penny, and extend the auction each time someone places a bid in the final seconds. Oh, and collect $0.60 from each player for each bid they place. The winner of the auction might walk away with a good deal, but the losers will have racked up big fees chasing their sunk costs. The house always wins. Writer Mark Gimein calls the site “the evil bastard child of game theory and behavioral economics.” [%comments]


M.B.

There are some smart people concocting the hidden fee structures. The problem seems to be the oligopical nature of internet auction sites. They need to be big and successful to work.

E-Bay while obviously not as bad as the site mentioned has multiple layers of seller fees and they entice you in with periodic free listing deals. So you only pay a percentage of the final sales and PayPal fees and any premium listing fees.

The solution may be for Google, Yahoo or Microsoft to create a low fee competitor, although I realize one of these may already own E-bay or Swoopo.

JCB

This post doesn't have the math quite right -- each bid (which does cost $0.60) is for $0.12, not a penny, so the site collects $0.06 for every penny of the eventual sale price, meaning they'd make "only" $215.16 in the scenario described in the price.

Still a clever idea.

Ezzie

That is freaking brilliant.

Transplanted Lawyer

It actually gets worse than described. The auction is structured so that there is a relatively short period of time -- maybe thirty seconds or so -- left on each auction. Or so it would seem, because each time a new one-cent bid is put in, ten seconds gets added to the clock.

Secondly, Swoopo is populated with "bots," small programs that will bid automatically for you, at $.60 or $.75 per bid, submitting tens of bids in a single second. Each bidder gets to put in conditions like when they will "swoop" in to bid up the price by a penny, usually at or just before the auction closes, and how many bids they are willing to make (usually as many as it takes to win). When you put in a bid on Swoopo, you're competing against these "bots."

Finally, many of the prizes are virtual. You can bid of $100 cash. You can bid on a swoopo certificate to make free bids. These things do not cost swoopo any money at all, there is no product, and the prize itself is generated by the bidders rather than being something actually offered for auction.

The end result is something that looks like if you time it right, you can get $100 for a penny thus turning a 10.000% profit. The reality is that because most pepole do not understand the gambler's fallacy, they will spend $200 to win $100. This combines with a sense of immediacy and urgency.

These people are very, very clever. And evil. But definitely clever.

In reality, what's going on here is gambling, and a rational evaluation of the site would treat it like an online casino -- pay if you want the pleasure of gambling, but don't go into it expecting to turn a profit.

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Clifton Ealy

I wonder what stops Swoopo from bidding on the items itself. Then they could insure that they would always make money.

Christopher Luccy

Can anyone sell items on Swoopo? Seems like a good gamble when YOU become the house...

Steve

Check out Dubli....they have had a similar model for years and they are very popular in Europe.

Cory

I wouldn't touch that with a 10 foot pole. What's keeping them from bidding against their customers?

Marton

As far as I understand, nothing stops Swoopo for bidding themselves in a "hidden" fashion:

Being the operator of the site, they even can set it up in a way that all the bots only have the option of bidding until the last second or 0.1 second before the end of the auction. Then Swoop themselves can make a shill-bid in the remaining milliseconds if no bid has taken place and the price is below their reserve.

This would prevent any and all losses for them in the rare case that they cannot start a bidding war and rake in 600% profit. Sheer evil genius.

Rian

Transplanted Lawyer, great comment. Thanks for sharing.

Dan

Probably the product of unemployed evil geniuses from our decimated financial sector. We should expect more such ingenuity in the future.

Nathan

There's a watchdog source for these penny auction sites similar to swoopo, yes there are MANY more of them it's http://www.pennyauctionwatch.com.

Peter

In what way is this site "evil"? So long as they don't bid themselves, everyone knows what they are going in for. If a site sold a laptop for $100,000,000 it would be a rip off but not "evil", as it is for the individual to choose whether to contract or not?

Judith

Peter: They are evil in the same way that state lotteries are evil. They play on the lack of understanding of odds & math by their players. They advertise focusing on the low final sales price, without mentioning the sunk cost, and how much money they actually make.

I think sites like this should be regulated as gambling, with a disclosure requirement.

Derick

I'd like to be a fly on the wall if there's ever a court case over whether or not this is legally a gambling site and should be regulated as such...

DaveyNC

I checked Swoopo out some time ago. I think it is owned by Dr. Evil. If you do your math right and stick to your discipline in bidding, you can go OK. I'm also sure that if you do that, you will never actually win the item because some knucklehead will always outbid you and you're out your bid fees.

Sheer genius--all the fees and conditions are fully disclosed, so it is truly caveat emptor.

Jan

Watch out for Swoopo's recent changes:
As tow days announced, Swoopo just started to test a “buy it now” feature on its German and Austrian website, take a look at their today published press handout:
http://translate.google.de/translate?js=n&prev=_t&hl=de&ie=UTF-8&u=http%3A%2F%2Fwww.presseportal.de%2Fpm%2F76174%2F1436618%2Fentertainment_shopping_ag&sl=de&tl=en&history_state0=
Users can apply the TOTAL costs of their previous bids towards the purchase of an item, which means that, if you have spent 100 bids and the auction is still running, you are able to purchase the item for its announced price (which is usually much above the market price) less the costs of your bids spent so far (50 €; 100 bids x 0,50 € per bid).
I wondered myself why they have changed their business model and implemented this feature … because, as it seems, Swoopo has become more attractive from the user's perspective on the one hand and Swoopo lowers its own margin on the other hand. It obviously doesn't fit to Swoopo's former strategy…
Besides the fact that people have started to bid as mad, because they practically cannot lose money for bidding anymore as long as they are willing to pay the price announced by Swoopo, there is an evil aspect coming along this feature:
Just take a look at both the German website http://www.swoopo.de and the US website http://www.swoopo.com and you will see that all users bid on the same auctions. Well, this fact is not really new … but if you take into account that Swoopo shows the “buy it now” feature (blue shopping cart item) to its German and Austrian users only, the racing conditions are pretty unfair. While Germans and Austrians cannot lose anymore (as long as they are willing to pay the price announced by Swoopo), US users and users from all the other countries are taken for a ride. They simply don't know that this feature is exclusive to Germans and Austrians, and, moreover, they don't know that they practically cannot win anymore.
Swoopo pretends them real bargains but conceals that lots of German and Austrian users will have activated their bid butlers loaded with tons of bids – they practically have an infinite amount of “freebids”.
Don't you think that this is a REALLY EVIL SCAM???
In my opinion, all users from other Swoopo countries except Germany and Austria should immediately stop bidding, as Swoopo takes them for a ride.

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Jordan

I agree; it seems like there's a rush to deem the operation evil. The only negativity I feel is frustration I didn't think of it! If this is evil, most any game is evil; it only exploits people who don't think it through, and it's not like it takes a remarkable intellect to realize that if you don't play right, you lose.

Unfortunately for those of us looking to game the system and profit off of it, it doesn't really settle on any equilibrium prices for items; items like the PS3 go for anything between 80 and 210 dollars.

mfw13

Anybody stupid enough to bid in this type of an auction deserves exactly what they get, which is to lose money while getting nothing.

It doesn't take a genius to realize that only the person who wins the auction should have to actually part with any cash.

Any site that requires you to pay just for the privilege of bidding is for suckers.

Ian McKay

This is like a tax on being stupid.

Swoopo used to reveal what the item cost the buyer (including all their bids) when the auction was over. I have seen many auctions where the buyer alone paid more than the item was worth when the costs of their bids were included. Never mind all the paid bids placed by the 'losers' (Losers in every sense of the word!).

I find the site fascinating. It's like internet p*rn for gamblers.