Frequently asked questions

A penny auction is an online auction in which every bid costs a non-refundable fee. Each bid raises the price by a small step, usually one cent, and adds a few seconds to the clock. The last bidder when time runs out wins.

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Because each bid usually raises the price by one cent. The penny is the price step, not the cost of a bid; a single bid typically costs far more than a penny.

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In a regular auction, bidding is free and you pay only if you win. In a penny auction, you pay for every bid, win or lose, and the auction has no fixed end time because each bid resets the clock.

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There is no settled legal answer in the United States, and penny auctions are not regulated as gambling. Because the outcome is hard to predict and you pay to take part, consumer agencies have compared them to a lottery. It is safest to treat bids as money spent on entertainment.

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Penny auctions are generally legal. Regulators have, however, taken action against sites that used fake bidders, hid fees or misled customers, so the way a site operates matters.

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The idea goes back to economist Martin Shubik's 1971 "dollar auction" game. The first penny auction website, TeleBid, launched in Munich, Germany, in 2005 and later became Swoopo.

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Much less than they were. Hundreds of sites appeared between 2008 and 2011, but most have closed. A few still operate.

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It depends on the site and the size of the bid pack. One bid can cost from about 10 cents to a dollar or more, and larger packs usually cost less per bid. To find your cost per bid, divide the pack price by the number of bids in it.

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Usually not. Bids you place are spent whether you win or lose. Some sites let you apply the value of the bids you spent toward a "buy it now" purchase of the same item.

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Rules for unused bids vary by site, including whether they expire or can be refunded. Many sites set an expiry date, often a year after purchase. Check the site's terms before buying a large pack.

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The winner pays the final price, plus every bid they placed, plus shipping and any fees. A $30 win after 200 bids at $0.10 each costs $50 before shipping.

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It is the fixed price at which a site offers to sell an item directly, outside the auction. On penny auction sites it is usually the only price shown for an item. Compare it with ordinary retailers before counting on it.

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Because each bid moves the price by only one cent. A $30 final price means about 3,000 bids were placed, and every one of them was paid for by someone.

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Each new bid adds time to the countdown, often resetting it to 10 to 20 seconds. This gives other bidders a chance to respond, so the auction continues as long as someone keeps bidding.

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When the countdown reaches zero without a new bid. There is no fixed end time, so an auction can last minutes or hours.

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Often not. Many sites close an auction to new bidders after a set time or price, so only people who have already bid can continue.

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A site tool that places bids for you automatically, up to a number of bids you set. Each automatic bid still costs a bid, so set a limit you are comfortable losing.

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Because the bids you have placed feel like an investment you would lose by stopping. They are already spent either way. Decide based on what more you might spend from now, and set a limit before you start.

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No. You cannot know how many bids other people are willing to place. The only thing you control is how much you spend, so decide your limit before you start and stop when you reach it.

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Not always. Some sites cap how many auctions one person can win in a set period, and some run beginner auctions open only to people who have won few or none.

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Shill bidding is fake bidding by, or on behalf of, the seller or site to push the price up or keep an auction going. Some sites have used software "bots" to do this. It is deceptive, and regulators have shut down sites that did it.

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Check that the site lists a physical address and phone number, and that its terms clearly state bid prices, fees, shipping and refund rules. Search the site's name with "complaints" and look up its Better Business Bureau record before entering card details.

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• Registration or subscription fees, or "free" bids that require a card
• Terms that are hard to find or hard to understand
• Ads that show only very low winning prices
• The same usernames winning again and again in the final seconds
• No physical address or phone number

Read more: What to Watch For: Unfair and Illegal Practices in Penny Auctions →Link to this answer

Some terms allow it. Sites may suspend accounts that break their rules, and some say all bids are forfeited when that happens. Check the terms before buying a large pack.

Read more: What to Watch For: Unfair and Illegal Practices in Penny Auctions →Link to this answer

Possibly not in court. Many terms include an arbitration clause and a class-action waiver, which send disputes to private arbitration and stop group lawsuits. You can still report problems to the FTC, your state attorney general and the BBB.

Read more: What to Watch For: Unfair and Illegal Practices in Penny Auctions →Link to this answer

You can report it to the Federal Trade Commission at ReportFraud.ftc.gov, to your state attorney general, and to the Better Business Bureau. Keep receipts, screenshots and emails as records.

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BidHow is an educational website that explains how penny auctions and online auctions work, in plain language. It offers free articles, a glossary, short courses in Auction Academy and optional auction alerts.

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No. BidHow does not run auctions, sell bids or take part in any auction.

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No. BidHow does not recommend or rank auction sites, and it is not paid by them: no commissions, ads or referral fees. Articles explain how auctions work in general. Auction News and Auction Alerts may name sites to report facts; naming a site is not an endorsement.

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Yes. A free membership, using only your email address, unlocks Auction Academy and Auction Watch (auction news and Auction Alerts). There is no password and no payment.

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An optional email listing upcoming auctions in the categories you choose. Alerts are information, not recommendations. Choosing categories does not sign you up for emails; you turn emails on separately.

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Use the unsubscribe link in any alert email, or turn emails off on the Auction Alerts page. Your membership and saved categories stay as they are.

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