Here’s why: Traditional auction sites like eBay make money by charging the seller a fee for handling their transaction. But penny auction sites are the sellers. They attract customers with low prices, and make money by charging .50 or a dollar for you to post a bid. So, let’s do the math on the $60 iPad. The auction price starts at one penny and each bid raises it by another cent. So, by the time it’s sold for $60, there have been 6,000 bids. At .50 a pop, the auction company collects almost $3-grand from the unsuccessful bidders! According to Consumer Reports, auction winners often spend more on bid fees than they would’ve paying full price at a store. Amanda Lee, who founded the website Pennyauctionwatch.com, isn’t surprised. In fact, she says that many penny auction sites use “autobid software” to compete against their customers and artificially inflate the total number of bids.
Something else to keep in mind: The Federal Trade Commission recently issued this statement, “Penny auctions move fast. Before you know it, you could spend far more than you intended, with no guarantee that you'll get anything in return.”