In a traditional auction, bidding is free and only the winner pays. In a penny auction, every bidder pays for every bid, and the winner also pays the final price.
Key takeaways
- In a traditional auction, losing costs nothing. In a penny auction, every bid is spent, win or lose.
- A traditional auction usually ends at a set time. A penny auction ends only when no one bids again before the clock runs out.
- A traditional final price shows roughly what the item was worth to the top bidder. A penny auction's final price mostly shows how many bids were placed.
At first glance, a penny auction looks like any other online auction: an item, a rising price, a countdown and a winner. The difference is in who pays, and when. That one change affects almost everything else about how the auction works.
A quick refresher on traditional auctions
In a traditional, or ascending, auction, bidders openly raise the price until no one will go higher. Placing a bid is free. Online, the auction usually closes at a fixed end time; in a live sale, the auctioneer closes it. The highest bidder wins and pays their bid, sometimes plus a buyer's premium charged by the auction house.
Side by side
| Penny auction | Traditional auction | |
|---|---|---|
| Cost to place a bid | A paid bid credit, often 10 cents to $1 or more | Free |
| How much a bid moves the price | A fixed small step, usually one cent | Any amount above the current bid |
| When it ends | When the clock runs out with no new bid | At a fixed time, or when the auctioneer closes it |
| What the winner pays | The final price, plus every bid they placed, plus shipping | Their winning bid, plus any fees |
| What losing bidders pay | Every bid they placed | Nothing |
| What the final price tells you | Mostly how many bids were placed | Roughly what the item was worth to the top bidder |
One item, two formats
Imagine the same tablet sold both ways.
- Traditional auction: bidding ends at $250. The winner pays $250, plus any fees. Everyone else pays nothing.
- Penny auction, with bids at $0.10 each: the auction closes at $30, which means about 3,000 bids were placed. Bidders spent about $300 on bids in total. If the winner placed 200 of those bids, they paid $20 in bids plus the $30 final price, or $50. The other bidders spent about $280 between them and received nothing, unless they used a "buy it now" option.
The penny auction winner paid less than the traditional winner. Across all bidders, though, about $330 was paid for one tablet.
How bidding changes
In a traditional online auction, you can enter the most you are willing to pay and let the site bid for you, or place a bid in the final seconds. Neither costs anything if you lose.
In a penny auction, a last-second bid simply restarts the clock, so the auction becomes a test of who will keep paying longest. Every extra bid adds to your cost, whether or not you end up winning.
Other formats, briefly
- Some sites advertise free-to-bid auctions: bidding costs nothing, but check for membership or entry fees, or a buyer's premium, instead.
- Descending auctions start with a high price that drops until someone accepts it.
- Sealed-bid auctions collect one private bid from each bidder, and the highest bid wins.
Same name, different story
During the Great Depression, "penny auction" meant something else. When a farm was sold at a foreclosure auction, neighbors sometimes packed the sale, bid only a few pennies and discouraged anyone from bidding more. The lender received pennies, and the neighbors handed the farm back to the family. It was a protest against foreclosure, not a bidding format.
Before you bid
Checklist
- Check what a bid costs. If bidding is not free, you are in a pay-per-bid auction.
- Find out how the auction ends. A fixed end time and a resetting clock call for different plans.
- Count your total, not the price. In a penny auction, add your bid spending to the final price.
- Set a limit before you start, and stop when you reach it.
Summary
Traditional auctions charge only the winner. Penny auctions charge everyone who bids, which is why their final prices can look so low. When you compare the two, compare total cost, not the price on the page.