Online "penny auctions": Bargain or rip-off?

Online "penny auctions" - offering expensive items at huge discounts for the winning bidder - may seem like a great chance to get a good deal, but how do they hold up on closer inspection?

An investigation for the upcoming edition of Consumer Reports magazine finds many bidders end up spending more than they intend and have nothing to show for it.

So how do penny auctions work?

"Penny-auction sites offer the thrill of the bid" (Consumer Reports)

Greg Daugherty, executive editor of Consumer Reports, explained that penny auctions aren't like eBay, where you get to bid for free. ,/P>

Instead, you have to buy bids.

"They're 50 cents to $1, in many cases, and you could bid 50 or 60 times on a particular product and not get it, and basically walk away with nothing," he said. "(The auctions) appear to create an opportunity to get an amazing bargain on things, but I don't think people are realizing how many people they are bidding against and what it's actually going to cost them in the end."

Daugherty said their investigation found many of the sites are "probably on the level," but people, he said, need to realize only one person will walk away with that great deal.

"When you get into it, go into it with your eyes open," he said, "realizing you're probably not that one person."

To help safeguard yourself against being taken in, Daugherty suggests people search the name of the penny auction on a search engine with words like "complaints" or "rip-offs," and check out people's responses in the search results.

"There are dozens and dozens of these things, and some of them have been shut down," Daugherty said.

"Early Show" co-anchor Betty Nguyen noted, "They advertise that for just a penny you may be able to own a flat-screen television that is worth $2,000. What they don't tell you is, if you don't win that bid and you spend a $100, $200 trying to bid on it, if you don't win it, you're out that money."

Daugherty said, "Some sites will give you the opportunity to buy that television at retail. We also looked into that and find their retail prices are typically higher than you could play elsewhere.

"Before you buy it at retail at one of these sites, look around, look at your local stores, you may do much better there."

The people competing on these sites, Daugherty said, are "almost-professionals" who know tricks.

"For the average person going in there, the odds are pretty slim," he said. "I mean, there are ways to bid at the end, various strategies, and some of the sites, if you go into them, they will explain some of the strategies for bidding."

He added, "Some people have fun with these, but we say don't get carried away, and know what you're getting yourself into."

For more information on penny auction businesses, visit the Better Business Bureau website.