Introduction To Penny Auction Business Model - By: kathy jhones

Just like the online auction, penny auction is a form of a business model where we have the sellers and the bidders for various product and services. This kind of an auction business is also known as a bidding fee auction which is a type of All-pay auction whereby all the participants involved are supposed to pay a non refundable initial fee before placing bids on the already displayed items by the sellers. This is what actually differentiates the penny auctions from the online auctions simply because with the latter, there is no fee required to be paid by the bidders. The seller is only supposed to set a low price and bidders place their bids accordingly increasing the price until the highest price quote by the bidder who eventually becomes the winner of the item.

In this kind of a business model, the fee paid is non refundable and no one cares whether you win or lose the item you had placed your bid for. This fee is actually paid to purchase bids from all the buyers who are willing to place bids for the item in question. The technology behind this type of auction is that placing your bid on an auction means that the cost of that item you have bid is raised by a fixed amount which also extends the deadline of the auction by some amount of time simply because another potential bidder is ready to place a higher bid than yours.

It should be noted that with penny auctions, each successive bid tries to lower the value of the reward to bidders and thus the last bidder who will actually place a bid that will lower the value of the reward will end up winning and walk away with the item. This is actually a fair game to every bidder simply because everything is done in the open. It can take quite a longer time for an item to be won in penny auction simply because none of the bidders want to lose and yet he or she had paid non refundable fee. Everybody struggles to win through aiming at placing a higher bid that will actually outweigh all the other bids so as to win the game.

This process of auctioning continues until one of the bidders wins. It becomes the mandate of the auctioneer to collect the final cost of the item together with the amount already collected by selling the bids. At this time, the auctioneer receives the income which includes both the fees collected for each bid placed and also in form of the payment for winning the bid.

There is actually timing for the placing of bids unlike in the online auctions. When the time runs out or expires, the last bidder is announced the winner and he or she is expected to pay a final bid price which is lower than the retail price of the item that he or she has won and finally walks away with the item.

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