The online community is constantly changing, and the latest appearance on the scene is the penny auction. The penny auction looks much more like a lottery, than a conventional auction. Lotteries exist in some states, for non-profits, they are expressly forbidden for, for-profit entities. If penny auctions are lotteries, will they be shut down –like the online poker sites, and their owners jailed as well?
The conventional online auction is a place for its members to list, bid upon, sell and deliver goods and services between themselves. The auction site does not own the goods or services, it provides a forum for the exchange of these items, and an arbiter of the inevitable disputes. It makes its money for providing a place for this exchange.
The penny auction site is different, the auction site owns the goods that are on the site. Further more, you purchase bid packets or chances to bid on items, the auction goes up by a penny with each ‘bid’, also there is an extension of the auction closing time with each ‘bid’. If you are the high bidder when the time runs out, you are the winner and get to pay the final value too.
I have been seeing TV ads for penny auction sites, so I decided to try one. I signed up, then found an item that I commonly purchase. I decided to try to win it. I first tried to get it with the 10 free bids that were given to me for signing up with the site — to no avail. I then purchased a bid package, and tried again to no avail. I purchased another bid package tried again to no avail. At this point, I had spent the same amount, that I would have if I purchased the item off another e-commerce site, but had no item. I will not participate in any other penny auctions.
What makes this penny system look like a lottery, I will evaluate. First, you must purchase bid packets –you pay an amount for each bid, whether you win or not. A lottery charges you an amount for each ticket, whether you win or not. Secondly, the winner of a penny auction item must pay the final bid amount to get the item. The winner of a lottery is responsible for taxes, you generally must pay the taxes before you get your lottery proceeds. Lastly, the penny auction owns and runs the auction, and does so for a profit. The lottery –whether run by non-profit or government, operates for a profit. For these reasons, penny auctions and lotteries have many similarities.
The conclusion that I have is that penny auctions are operating at the edge of lottery status. lotteries are illegal, in the USA, for for-profit entities. I wonder if there is a chance that penny auctions will suffer the fate of the online poker sites.