Supposing a certain person wants to bid for a cannon brand camera over the internet, and bumps into an e-bay site and the penny auction strategy site, what would be the best choice for him to make? The e-bay displays the item for about 2 dollars as the starting value. Similar item is displayed on a penny auction site and the seller offered if it for 1 dollar as the starting price.
Typically, if you have visited both sites, you can easily compare the price difference. Being an amateur bidder, you will always put your bid to the item that has the least amount and hope that you can obtain the item on the least amount possible that you are to bid.
Assuming there are 3 participants on each site. The first bidder on e-bay, bid for the item to arrive at 2 dollars and 1 cent. Second bidder on the same site raises the price to 2 dollars and 2 cents. You as the third bidder can raise it further more. Assuming you close it to 2 dollars and 3 cents and no other bidders has bid further. Automatically, you are the one who won the bid for the camera. Now let’s put the same scenario on Penny Auction site where for every bid, you will be charged 1 cent. The starting price is 1 dollar but for every bid you make, you will be charged 1 cent. If you are the first bidder, you raised a bid of 1 cent making the item’s price 1 dollar and 1 cent. Apart from the 1 cent you raised, you were already charged 1 cent for raising a bid. Another bidder bids for the price of 1 dollar and 2 cents likewise he was charged for the bid he made. And the third bidder bids it further for 1 dollar and 3 cents and was also charged for the bid. If you will not raise the bid any further, the 3rd bidder wins the item while you just lost 2 cents in the process. If you bid for it for 1 dollar and 4 cents, and nobody bids further, then you won yourself the camera. So comparing the 2 situation, in Case 1 you were not charged for the bid you made but the price was higher in the end. Case 2 was cheaper although you were charged for every bid you make. So as a wise bidder, you should weigh the situation first before going into the biding process.