If you are essentially bidding/betting or whatever you call it on hitting a random time point, it is a game of chance. Legitor not, it is a violation of US gambling laws. The possibility that in fact they never have to pay out - adds to the stupidity factor afflicting their customers.
The ability to run the game out of the scrutiny of the authorities, and thus perhaps enahance the house’s odds - just adds to the “chance” element. Even if the items were actually bid for and won by unrelated 3rd parties - legitimate participants - still does not take away from the fact that it is gambling and thus illegal.
This was exactly my thought. If I owned one of these sites, what I would do to get around the shill bidding account ever winning would be to have a minimum price the item would have to reach before selling it. Once this amount is met, the shill account bots could shut down, and the automated bid software could run until the item is finally won.
From what I’ve been reading, IMO these sites also approach the concept of a pyramid scheme. When a site is just starting and not well know, it appears that people actually do win prizes and save a lot of money. Then, as more people hear about the site, more bidders bombard the auctions and your odds of winning are greatly reduced. Once this happens, people deplete their accounts with the autobid software, then move on to another newer site that has less members.
Like a pyramid scheme, only the folks in at the beginning have any real shot of getting their money back. (yes, I know it’s not an ACTUAL pyramid scheme).
The autobots are interesting because there is virtually no way you could prove the site you were using was on the up and up. There is actually code out in cyber space to set up a site like this, so people have been coming out of the woodwork lately setting up these sites. That software includes an illegal shill bidding bot (according to someone who downloaded it and looked at the code).
The smart thing to do would be to play it straight. Do exactly as you promised and sell the merchandise to a real bidder. You’ve got a system that’s making you a fortune legally - why risk it all by breaking the law for a small extra amount of money?
But in reality, people do dumb things like that all the time. They’re not satisfied with taking home a legal million dollars a year - they have to steal a thousand dollars on top of that. And they often get caught stealing the thousand and end up losing the million as well.
Without independantly auditing every auction, it’s impossible to know if this sort of thing goes on. However, with the model the penny auction sites use, there is absolutely no need for them to play games like this, and it would be likely to backfire if they overdid it. The publicity generated from the small amount of people who do get a bargain is helps keep these sites going. I wouldn’t be suprised if it happens somewhere though.
Also bear in mind, the sites can tailor the number of auctions to the number of users they have at any one time, to ensure they do not make a loss on the actual auctions. They don’t even have to order any items until the auction ends, so have zero stock costs. All they need to be viable is enough users to cover their infrastructure and advertising costs.
Probably nothing will be done about them until a large site goes bust. It’s very clear to anyone who understand how these things work that they are not simply gambling, but a particularly unethical form of gambling. The ratio of payouts to stakes is very low when compared to more traditional forms of gambling.
I’ve been meaning to email my MP about these sites, I’ve seen a couple advertised on the TV over here in the UK, but haven’t got around to it yet.
Is this “gambling”? Is a produce stand offering “half off on lettuce while supply lasts” offering a gamble? How about fire insurance, etc.? If to buy or sell insurance is not to gamble (“To bet on an uncertain outcome”), I’d be curious what dictionary you’re using. (“bet” = “An agreement usually between two parties that the one who has made an incorrect prediction about an uncertain outcome will forfeit something.”)
At one time in California, card clubs could offer lowball poker but not draw poker, because lowball was judged to be a game of skill, while draw poker was judged gambling!! :smack:
Anecdote:
I once had the chance to serve as an expert witness as to whether a certain game had “skill” and therefore should be legal in California clubs. It would have been a fun bullet for my resume, but I had to turn it down because I’m so candid and outspoken. My client would not have been happy with what I’d say under any clever cross-examination.
I wouldn’t take this as proof that the founders of that site lost money. We know they were scamming their users; why not scam their investors as well?
I don’t understand why there is a question of legality to begin with. Random observations that hopefully can be taken piecemeal to get at my point :
You can buy Cecil brand Peanuts for 3.99 at Store A.
You can buy Cecil brand Peanuts for 3.90 at Store B.
And yet stores chose to be price leaders and customers chose to boycott them. [Wal-Mart]
Nothing illegal there.
People willingly pay the extra nine cents. For what?
You can donate money to a church, and have no tangible associated with it.
Supply and Demand is based on perceived value of a good.
Depending on situation or need, you might pay twice (or more) the price for a good than you normally would [Beer at a Sporting event]
On top of that, the bidding implies consent. If there is consent then people accept what is happening.
Again, I don’t really understand what the legal question is.
Full disclosure : I put money into Swoopo to understand how it worked first hand. After a bid or two, I figured out the scam of it. [Too bad I had 18 bucks or so left to go. Hey, I could get “lucky” right?]
But I think that most people don’t know that they are being taken.
I’m not sure you can make laws to protect the stupid. And if you could, I think you would be better off protecting us from the stupid*.
Cue people calling me stupid for putting $20 into swoopo.
**
Its “legal” because price and human intelligence is fickle. Projected over a given population there would be a vast variance. Knowing how to tap that variance yields a market. [That I thought would last longer than it has. What, not even 3 years?] **
If I go to a store and they put a price sticker on a bag of peanuts, the offer is pretty clear - I give them that amount of money and they give me that amount of peanuts. It might not be the best deal being offered but the terms of it are clear.
If a church asks me for money, they aren’t going to promise me anything tangible in exchange. Again, I may not think it’s a good offer but there’s no confusion involved.
If I am gambling, I’m being offered an opportunity to buy a chance at winning a prize. I may not win the prize, but the offer says the prize exists and I have a chance of winning it.
When you submit a bid to an auction site, you presumably think you are receiving a chance at winning the prize in return. As has been documented here, this is often not true.
I’m no lawyer, but I think the legal angle is that the penny auction sites are a form of gambling, but are not advertised or regulated as such. There are rules that prevent casinos from completely ripping off their customers. No such protection is in place on the penny auction sites, they can manipulate the odds by adjusting the number of auctions they run, and so control the number of people bidding against each other. These odds are never made public.
To answer the question about the mindset of people who bid on these auctions, take the example of my grandfather, who is otherwise an actual measurable honest-to-goodness genius. He disregards the cost of the bids. 40 cents a bid a hundred times just to lose an item feels insignificant, because he never even gave them one dollar. The auction style preys on people psychologically much more than it preys on their intellect.
Yes, and it also exploits the sunk cost fallacy. Once people have made a number of bids for an item, they are likely to keep bidding on it, to ensure their earlier bids were not a waste of time (not realising that as soon as any bid is superceded, it is lost).
Lots of people are going to get caught out by these sites. I was forewarned, I don’t think I’d have realised quite how extortionate they are by myself, as I wouldn’t have done the maths.
Indeed it does. the bidder (not bettor, if you’ve noticed), sees that all of his bids were losers, looks at his resources he has left, and makes a decision pretty quickly: "Do I stop bidding on this item, eating my losses completely (the sunk cost scenario), or continue, thereby not “losing” the money I’ve already put in (which they have). Stopping the bidding guarantees they lose the item. Staying in until it’s either won or you’ve run out of money. Either way, you’ve lost a bunch of money, but the second scenario allows you to feel like you really had a chance until the end.
“You can’t fix stupid”*****. And if there weren’t so many stupid people out there, these sites wouldn’t keep popping up out of the woodwork.
*Ron White, who should know with that gang he hands out with.
It doesn’t, it mearly makes them unethical. It the fact that it’s a form of disguised and unregulated gambling that means it’s likely to be ruled illegal (in my opinion) if it ever gets taken to court.
You do realise that gambling is heavily regulated? For example, a casino must hold a large cash reserve, to ensure it can honour any bets, even if you casino has a really unlucky night. That’s a level of protection users of penny auction sites don’t have.
If this is like the site I looked into - you keep bidding until, at a random time, the auction ends and the winner is the last bidder. The key element here is “ends at a random time”. Real auctions end when people give up bidding. Random time means “game of chance”, no predictability. Also, in this scenario, a bid is actually spent, each bid costs you money (or there is a fee to place each bid); unlike a real auction, where you only pay your bid amount, and only if you win.
It’s gambling, pure and simple, guess a random point in time - with a funny name “auction” stuck on it.
Gambling outside the licensed rules is illegal in the USA, and foreign locations allowing US-based participants are breaking the law too; the actors in the process will be prosecuted if the USA can get their hands on them.
Gambling, pyramid schemes, loan-sharking, etc. … just because some activities involve the willing or unwitting participation of stupid people does not make them OK. Many governments pass laws to protect stupid people from themselves, with varying success.
I was under the impression that these auctions don’t end randomly. They end when the clock runs out after the last bid. The uncertainty is in the fact that you don’t know when everyone else will give up.
Oh, so it’s a real auction? Considering how many complaints there were against a relatively open site like eBay, why anyone would participate in a pig-in-a-poke auction is beyond me. It would still be fraud unless there was no collusion between the auction site or multiple bidders. If you have t pay for each bid too, that’s a pyramid scheme.
That’s the reason I don’t think there’s that much genuinely UNgenuine selling going on: the setup makes the owners boatloads of money without having to lie or cheat or fail to send the item. If you do the math, they end up making some ridiculous amount like 20X retail.
Bidder 1 bids 70 times - Paid 50 Cents per bid, = $35 spent to try and win, $35 that goes in the pocket of the owners.
Bidder 2 bids 40 times, $20 to the owners
Multiply that and you can see how they make their money, making it no sweat to fulfill the winning bid.
It cuts somewhat into profit when people then apply their bids to something, but since everything sold is sold at top dollar, they make a profit no matter what - nothing needs to be dishonest or illegal.
It’s an expensive bet, and most people don’t win it, which is why it smells skanky, but if the system includes ways to actually get something no matter what, even if it’s at top dollar, then its legal. What they probably count on, and is probably true, is that very few people pursue using their credits or bids or what have you to pay full price for anything, so all those wasted bids that were paid for are pure profit.
I’ve never seen one that ends at a random time, although I’m not questioning that you did. All the ones I’ve seen end have a particular “semi” end point, which is actually the beginning, for all intents and purposes: it’s the point at which people start to bid in earnest. The bidding ends when no one makes a bid for 30 seconds. So you are bidding in hopes that no one will bid after you, because every new bid resets the clock back to 30 seconds. Eventually the auction ends because people don’t want to waste any more bids, and the person who was last to bid at that point wins.
Which, by the way, was the thing I was looking at in terms of strategy: see how different items at different times of day end up. Don’t bid at all until it’s getting close to what looks like the average point at which people win. Bid just a few times. Not much of a “strategy”, but better than bidding like crazy from the very start, since each bid costs money and it’s guaranteed people will bid behind you while it’s still low.
While that’s a better strategy than bidding early in one of these auctions (which is simply throwing money away), it’s still not a winning strategy. Problem is, everyone else is trying to do the same thing. You can try to bid just before an auction expires, but with most sites you are competing with automated bidding tools running on the server. This has been looked into in a lot of detail.
The people who run these sites hold all the cards, the best strategy is not to play.
The site I saw, every bid cost you some money. With the process you describe, why would anyone bid on anything while it was well below the going price, pay to be inevitably outbid? The bids that push it up close to the final bid have to be either insider bots, or really really stupid people if bidding is not free. If they take your money for a bid and then use inside knowledge and special program access to outbid you, then that’s fraud, which is more of a crime than gambling.
Either way, the complete lack of transparency would suggest it’s not legit.
Is a produce stand offering “half off on lettuce while supply lasts” offering a gamble? How about fire insurance, etc.? If to buy or sell insurance is not to gamble (“To bet on an uncertain outcome”), I’d be curious what dictionary you’re using. (“bet” = “An agreement usually between two parties that the one who has made an incorrect prediction about an uncertain outcome will forfeit something.”)