Auctions 101

What Is a Penny Auction?

Penny auctions are a type of pay-to-play auction format. To participate, users must typically register with the penny auction site and then purchase bids to use in the auctions. They bid on items they’re interested in, and when the auction clock runs out, the final bidder wins the item for its closing price.

How Auctions Work

Once registered, users must first buy bids to participate in the auctions. Bids commonly cost anywhere from $0.60 to $0.80, and most penny auction sites offer bid packs in which users can save money by purchasing larger quantities at one time.

Penny auction sites auction products ranging from electronics to kitchenware to jewelry and gift cards, all set to end by a certain time on the auction clock. The starting “price” of these items starts at a very low value (sometimes less than $1) and each bid increases this price by $0.01 – hence the name penny auction. As participants bid, the auction clock winds its way towards 0:00.

As the auction timer approaches the final seconds of the auction (most commonly 00:10, 00:15, or 00:20) the clock automatically resets with a few extra seconds, allowing all participants equal opportunity to bid.

Once it finally gets down to the 0:00 mark, the final bidder is the auction winner. The bidder wins the product for the closing price.

Types of Auctions

Penny Auctions: Penny auctions or 1-cent auctions work on the model explained above. Users purchase bids and then bid on items they want, incrementally increasing the product price by $0.01. When the auction timer reaches 0:00, the final bidder wins for the closing price.

Free Auctions: These auctions are offered by penny auction sites that promote sign-up bonus bids, rewards programs, and other “free bid” incentives. Users can then use their free bids in the free auctions. Typically, Free Auctions feature lower end retail items, gift cards, and bid packs.

Starter/Newbie/Beginner Auctions: These auctions are promoted to users that are new to the penny auction industry. They often have win limits attached and are designed to let new bidders participate in auctions alongside others with similarly limited skill levels.

Capped/Price Freeze Auctions: In this format, the penny auction site limits the auction close price. The auction runs as a normal penny auction until it reaches the designated price cap (typically 10%-25% of its retail value). Once there, bidders continue to place bids as usual, however, their bids do not incrementally increase the price – it stays fixed at the capped amount. This is the amount the winning bidder pays for the item. These auctions are commonly run as limited time promotions.

Buy It Auctions: This auction format allows non-winning bidders of a given auction the opportunity to purchase the product they were bidding on at retail cost. Most commonly, penny auction sites offer a refund on bids or return used bids from the auction back to the users’ accounts. This presents a risk-free bidding environment and represents a good way to ensure you don’t leave empty-handed.

Learn more about penny auction strategies or download our free guide.

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