Unrealistically cheap e-reader auctions are too good to be true

Have you ever seen those ads offering iPads (or for that matter Kindles or other techno-gadgets) at unrealistically low prices via some auction service? I have, and upon checking into the fine print decided to leave them alone.

Now Philip Elmer-DeWitt at CNN’s Fortune section has taken a closer look at one of these, Swipe Auctions, reportedly offering an iPad for $31.47. He goes as far as concluding that it’s a scam, but he doesn’t actually unpack the business model behind such sites or explain how they work.

That’s left to a reader named Evan in the comment thread below the article:

Do a search for ‘fraud’ and ‘beezid.com’. It uses the same tricks. Basically you have to PAY (between 50 and 80 cents) to bid ONE PENNY at a time. So, let’s say an iPad eventualyl sells for $20.00 on the site. The winner will only have to pay that much. But that means that 2,000 bids have been made, at an average cost of 65 cents each, meaning that the company made $1320 on a $499 item. BRILLIANT FRAUD! Not to mention claims that their sites have bots to prevent items from selling before they hit the large profit margin.

(Ironically, as other commenters point out, ads for these auction sites are rife on CNN’s article pages, including that one.)

So when it comes to penny auction sites, let the buyer beware. There ain’t no such thing as a free (or, in this case, nearly-free) lunch, so when you see an ad offering something at an unrealistically low price via “auction”, better be careful. The only legitimate way to get something cheap via Internet auction is through real auction sites such as eBay.