The auction web site Swoopo.com may initially seem like a hotspot for amazing bargains – the front page includes products like laptops, digital cameras, and Windows 7 software. And the prices are astonishingly low: with a little more than four minutes left on the bidding clock, a MacBook Pro was going for less than a dollar.

Naturally, with a site so full of apparent bargains, there’s a catch.

Entertainment Shopping

While Swoopo.com may initially seem like a simple, eBay-style auction bonanza, its inner workings are a bit more nefarious:

• Penny bidding: The bidding for many items begins at one cent. At the start of the auction, an end time is set.
• Raise a cent: Each bid represents a one-cent increase from the previous bid, but costs the bidder 60 cents to make.
• Clock manipulation: As the auction nears its end, the clock resets to 20 seconds every time someone makes a bid, meaning that an auction be “almost ending” for several days.
• Auction closes: The winner must send an email to confirm that he or she still wants the item, and may have to pay a fee.

Because of the cost per bid, Swoopo makes 60 times whatever the selling price of the item is – which means $6,000 on an item that sells for $100. In most cases, their share comes to a pretty hefty profit.

Escalation of Commitment

As an article from The New York Times explains, this type of bidding is essentially a form of gambling. And it can be dangerous. Here’s why:

• Personal investment: As the bidding goes higher, each individual bidder invests more money, which generally translates to a deeper commitment (think about it: you’re more likely to hang onto an old car you just poured $1,200 into than one that hasn’t had work done in years).
• Chances of winning: Here’s the thing it’s easy to forget in the heat of a bidding war: only one person wins the auctions. That means that you could end up pouring hundreds of dollars into nothing.

Researchers who have studied games similar to Swoopo generally recommend avoiding such endeavors, which can be difficult to walk away from (like any moderately fun video game).

If you aren’t careful, online gambling, like compulsive shopping, can lead to a devastating cycle of debt.

Additional Resources

Two Essays on Escalation of Commitment (PDF)