eBay Auction

Bidding Fee Scheme

A bidding fee scheme is a grey area business model for online auction sites that allow them to make large profit margins on goods by charging non-refundable fees for bidding.

In the most common form of the business model, the products are supplied by the auction site and advertised at prices lower than cost.

How it Works

Despite being labeled as an auction, the winner is not necessarily the person who bids the highest. In bidding fee auctions, a bid limit (either maximum or minimum) is given, and the closest unique bid to the limit wins. Unlike most auction sites, the bids are usually hidden so that only the bidder can see their own bid. Bidding fee sites require skill and luck rather than just having the highest bid. From a bidding strategy point of view, they could actually be thought of as a form of gambling rather than an auction.

The selling point of bidding fee scheme sites is that the prices are very low. Since there is a fixed fee per bid, the auction site is able to sell the item for less than cost, and still manage to profit from the bidding fees. The auctions are set up to end after a certain number of bids rather than an ending date, which allows the business to ensure that they will profit on the item.

Example

In this example, the maximum bid is $15.00. The bidding fee is $10

Though there were higher bids than $14.96, it was the highest bid that only appeared once. Since the bidding fee was $10, the site made $150.00 in bidding fees alone.

If the product cost $100 for the auction site to buy, they make almost $65 in profit. This allows the auction site to have a high profit margin and still advertise competitive prices.

Risks

Since the profit is made through bidding fees, the bidding fees are not refundable. Also, as with any other site, bidding fee sites can appear and disappear quickly so it could be possible for a bidding fee site to collect bidding fees for several auctions and disappear before awarding the prize.

Since the webmaster is the only one who can see the bids, it is also possible for the webmaster to bid on the item his/her self, which would be unfair to others but hard to detect.

Other Common Traits

Many bidding fee auction sites claim to donate a certain percent of profit to certain charities. Since it is essentially a form of gambling, this encourages people to bet under the impression that even if they lose it is for charity. There is usually no record of these donations to charity, and they are often overemphasized to make the site seem not-for-profit. Despite the donations, it is still possible for these sites to have high return on investment.

In many cases, the sites do not provide legitimate contact information that would be expected for an online auction or retail service.

External links

• Discussion on the legality of a bidding fee scheme site
• Globe and Mail article (requires purchase for full article)

• Another copy of the same article

Example Sites

• Google search which returns many examples
• Unique Auction
• Smart Bid
• Cheaper Bid
• Bidwise
• Smart Bid
• 7 dollar bid
• Auctions 4 a cause - an example of a site that uses charitable donations

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This guide is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.