"Save up to 90%. Enticing, isn't it? That's what the penny auction sites on the Internet promise you. A 50-inch plasma TV for $60.35, a brand-new iPad for $25.76. Too good to be true? But how can these sites offer items at such low prices? This research will introduce you to the fascinating world of penny auctions and the many questions raised by this new auction method.
The classic operation of a penny auction is relatively simple. The site puts an item up for auction at a given time. The auction starts at a penny, and a timer starts a countdown, usually a short one (10, 15, 30 seconds). Each time the item is outbid, the price increases by a penny (hence the name "penny auction"), and the countdown starts again. The auction continues for as long as there are bids; when there are no more bids, the timer drops to zero and the auction, won by the last participant, ends.
Internet users wishing to participate in an auction must first purchase "tokens", which they use to place bids. A "token" costs between $0.30 and $1. The person who wins the auction pays for the item at the price determined at the end of the auction, as well as all the bets made to win the auction. All other bidders lose their chips and, consequently, their money.
This research aims to answer the following questions in particular: What are the stakes involved in this new type of auction? Is this industry regulated? What are the risks associated with penny auctions for Canadian consumers?
To achieve our objectives and answer these questions, we conducted a literature search, mainly on the Internet, on the growth and challenges of penny auctions.
Next, we contacted relevant stakeholders to find out their opinions and positions on the issue. These stakeholders came from a variety of fields, including penny auction site administrators, members of the police force, heads of regulatory bodies and experts in pathological gambling.
We also researched Canadian law to determine the legal framework for this industry. We also analyzed the terms of use of certain penny auction sites operating in Canada.
In order to gain a better understanding of how penny auctions work, we took part in a number of different types of auctions, including "beginner" auctions, auctions with the option of a buy-back, auctions with a self-bidder, auctions with free bids (for whoever wins the auction) and auctions featuring both low-value items and high-value items such as TVs, computers, tablets, etc. The aim was to familiarize ourselves with the concept, understand how the sites worked and grasp the different issues involved. Finally, we conducted three focus groups.
These were all held in Montreal. The first group was made up of penny auction participants; we wanted to gather their perceptions and opinions. The other two groups were made up of online shoppers who did not participate in penny auctions. These last two groups served as control groups.
