Criticism
Due to the possibility of participants spending a lot of money and still losing an auction, or spending more than the retail value of the item they end up winning, some analysts have criticized the model or compared it to gambling. The Better Business Bureau warns consumers, "although not all penny auction sites are scams, some are being investigated as online gambling. BBB recommends you... know exactly how the bidding works, set a limit for yourself, and be prepared to walk away before you go over that limit."
Some bidding fee auction sites have been shut down by state governments after investigations. Wavee US, LLC, settled with the Governor's Office of Consumer Protection in Georgia and agreed to close its web site after the office received complaints about merchandise not being shipped in a timely fashion. Washington state shut down PennyBiddr after a lawsuit in which the state accused PennyBiddr of using shill bidding to drive up prices and extend auctions, a claim originally made by members of the penny auction community. In addition, several auction sites which claimed to be Better Business Bureau "Accredited" were not members of the BBB or had poor ratings with the BBB.
Some Craigslist users have fallen victim to scams where a "seller" of an item on Craigslist refers would-be buyers to sign up for a bidding fee auction site. These sites then charge customers an up-front fee for a pack of bids and pay a commission to the scammer who referred a new customer to the site. The CEO of one site implicated in an MSNBC investigation blamed this behavior on rogue affiliate marketers.
Read more about this topic: Bidding Fee Auction
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