How penny auctions make money

Discussion in 'Off-Topic' started by MrChips, May 30, 2014.

  1. MrChips

    Thread Starter Moderator

    Oct 2, 2009
    For the first time I noticed penny auctions like MadBid and examined how they operate.

    Examples of winning bids

    MacBook Pro $250
    Canon 5D Mark III + 24-105mm lens $500
    Toshiba Laptop 17" i7 $180
    Mini Cooper $28
    Ford Minivan $3117

    How it works

    Every bid (one click on the button) increases the bid price by 1 cent/penny. A bid requires you to have credits (or points). The amount of credits required to bid varies (1-10 credits). Every auction has a countdown timer that changes (decreases from 60s to 5s as bidding progresses). The countdown timer is reset on each new bid received.

    How MadBid makes money

    MadBid is not losing by selling items at a discounted price. They make money by selling credits.

    Here is an example. A $2000 computer may go for $200.00
    That means there were 20,000 bids placed vying for the purchase.
    Each bid may require 8 credits, totaling 160,000 credits.
    You can purchase credits at $0.18 per credit.
    Or you can try to win credits in the auctions.
    Let us (for the sake of calculation) say the average cost per credit is $0.02.
    Then 160,000 credits would have cost $3,200. MadBid still makes a handy profit over the wholesale price of a $2000 (retail) computer.

    Is it worth the effort?

    Sure, one winner comes away with a purchase at a fraction of the retail price (plus the cost of credits to win). The true cost of the merchandise is paid for by hundreds of bidders trying to win.

    What are your chances of winning?

    Luck has a lot to do with it. On a low value item your chances of winning are not unreasonable if you have the right strategy. On a high value item the competition is bound to be fierce. But there is one other catch. MadBid can suspend all bidding overnight (Europe time) when interest is low and resume bidding the next morning. This obviously works against you.

    In order to survive an intensive bidding war and increase your chances of winning, you have to spend a lot of time (hours) watching the computer screen and observing bidders to see who comes and goes. Then you have to have a large (as in gigantic) amount of credits (thousands) and be able to play it out until you drain all your opponents credits or their desire to continue.

    Personally, if you enjoy sitting in front of slot machines at a casino, it's the same game. Count me out.
    Last edited: May 30, 2014
    Georacer likes this.
  2. mcgyvr

    AAC Fanatic!

    Oct 15, 2009
    Legal pyramid schemes :)
  3. atferrari

    AAC Fanatic!

    Jan 6, 2004
    Out me too!

    My worst experience was in a pachinko parlor (Japan): and old man watching the machine playing in authomatic for him. He just needed to collect the occasional rewards (bunches of the small balls used in the game). Add to that the noise of hundreds of machines and the absent look of hundred people staring at the displays. :eek: :eek: Frightening.
  4. Sparky49

    Well-Known Member

    Jul 16, 2011
    I'm willing to guess that given enough time, a pattern could be seen.

    Kinda reminds me of this video:

    Where the guys figure out exactly how the old spam emails advertising stocks would rise and fall, which would have enabled them to make the money, rather than the scammers. Maths is powerful.
    #12 likes this.
  5. Georacer


    Nov 25, 2009
    This was a great watch! Thanks, Sparky!

    So, the moral of the story was, MIT students have too much time on their hands?
    Sparky49 likes this.
  6. Sparky49

    Well-Known Member

    Jul 16, 2011
    LoL, I think that could be applied to all students. :D

    I really enjoy these defcon videos, there are some great ones out there. There's one on hacking hotel environment control to access their entire computer network, building an IC decapper and reading it's ROM from images, and some funny fails found by people hired to investigate IT crimes.