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"December 11, 2008 Profitable Until Deemed Illegal I was fascinated to discover the auction hybrid site swoopo.com (previously known as telebid.com). It's a strange combination of eBay, woot, and slot machine. Here's how it works:
You purchase bids in pre-packaged blocks of at least 30. Each bid costs you 75 cents, with no volume discount. Each bid raises the purchase price by 15 cents and increases the auction time by 15 seconds. Once the auction ends, you pay the final price. I just watched an 8GB Apple iPod Touch sell on swoopo for $187.65. The final price means a total of 1,251 bids were placed for this item, costing bidders a grand total of $938.25.
So that $229 item ultimately sold for $1,125.90.
But that one final bidder got a great deal, right? Maybe. Even when you win, you can lose. Remember that each bid costs you 75 cents, while only increasing the price of the item 15 cents. If you bid too many times on an item -- or if you use the site's "helpful" automated BidButler service, which bids on your behalf -- you'll end up paying the purchase price in bids alone. For this item, if you bid more than 305 times, you've paid the purchase price -- and only raised the cost of the item by $45.75 total.
OK, so bidding a lot is a bad idea, so maybe we only bid one time, or a few times, and near the end of the auction? Great plan, except the auction is extended 15 seconds each and every time someone bids in those final seconds. There are absolute end dates for the auctions, but they're usually so far in the future that the auction will end through attrition long before they reach their end date. I've often wondered if eBay would implement this feature, as it would effectively end last second sniping, a huge problem for auction sites. Well, beyond the obvious problem with auctions, which is that the most optimistic person sets the price for everyone else.
There's something else at work here, though, and it's almost an exploit of human nature itself. Once you've bid on something a few times, you now have a vested financial interest in that product, a product someone else could end up winning, rendering your investment moot. This often leads to irrational decisionmaking -- something called the endowment effect, which has even been observed in chimpanzees. So instead of doing the rational thing and walking away from a bad investment, you pour more money in, sending good money after bad.
It's pretty clear to me that swoopo isn't an auction site. It bills itself as "entertainment shopping". I think it is in fact a lottery; the only way to win here is sheer dumb luck."