Key takeaways
- The idea started as a 1971 economics game showing how people can end up paying more than a prize is worth.
- The first penny auction website launched in Munich, Germany, in 2005.
- Between 2008 and 2011, at least 125 sites appeared, then most closed.
- Regulators in the US, UK, Japan and China acted against fake bidding, misleading ads and gambling-like schemes.
- Today the format survives as a small niche.
A classroom game (1971)
In 1971, economist Martin Shubik described the "dollar auction": a dollar bill is auctioned, and the top two bidders both pay their bids, but only the winner gets the dollar. Players often bid well past a dollar to avoid losing what they had already bid. Shubik noted the game was "usually highly profitable for the auctioneer." Penny auctions are a commercial version of the same idea.
The first website (2005)
In September 2005, a Munich company launched TeleBid, where every bid cost 50 euro cents. It grew quickly in Germany, expanded to the UK and Spain, and in 2008 renamed itself Swoopo and launched in the United States.
The boom (2008–2011)
Swoopo's success set off a wave of copycats, helped by cheap ready-made website software. At least 125 penny auction sites were operating by late 2010, in the US, Europe, Japan and elsewhere.
The bust and the scandals (2010–2017)
The boom ended fast. Nearly 150 sites closed between late 2009 and early 2011, and Swoopo itself went offline in March 2011 and filed for insolvency. Regulators caught sites using fake "bot" bidders, shut down a $600 million Ponzi scheme tied to a penny auction site, uncovered paid celebrity endorsements in Japan, and in China classified a related lottery-style format as disguised gambling.
Today
Only a few penny auction sites still operate, and consumer agencies continue to warn about them. Researchers who studied the boom reached a similar conclusion: a small group of experienced bidders can do well, while most participants spend more on bids than they get back.
Story: A house for $26
In 2013, a Houston startup auctioned a four-bedroom house in a penny auction. It sold for a final price of $26.12. The winner had spent about $130 on 32 bids and had never seen the house in person. At one cent per bid, the final price means roughly 2,600 bids were placed in total.