September 30, 2010

Super Discounted Gift Cards at

A quick browse of will show gift cards being sold at pennies to dollar. That’s right. A $50 Costco gift card was recently sold for $12.40. A discount of 75%!!! This is incredible. Your first thought should be, “There has got to be a catch?” Well there is. is penny auction website. Penny auction, properly known as a bidding fee auction, is an auction format that requires participants to purchase bids upfront. The buyers can then use the bids to win auctions. A bid will increase the price of the item by a small amount and typically extend the auction deadline. The last bidder when time runs out of the auction is the winner.

Let us walk through how this works at Bidders can purchase bids known as “Lucky Chips” in packs of 10 for $6 per pack, effectively at $0.60 per chip. Discount is offered for volume discount and new customers. Once bidders have chips, they can start bidding right away and can keep bidding until there are no more “Lucky Chips” in their account. Each bid raises the price either by $0.10, $0.05, or $0.01 and extend the deadline by twenty seconds depending on the auction format. Automated bidding is allowed on some auctions via “Concierge” bidding. Concierge is an automated attendant that will bid for you until you’ve reached a bid or price threshold. Finally, the winning bidder has option to purchase the gift card at the winning price plus shipping.

Armed with this information, was that $50 Costco gift card really a good deal? The auction started at $0.00. Each bid raises the price by ten cents and extend the time by twenty seconds. Shipping fee is $3.50. In a back of envelope calculation, a bidder can bid no more than 58 time, ($50 – $3.50)/$0.80, to win a gift card and break even. The $0.80 is price of each bid plus incremental increase and counter-bid increase in auction price. A total of 124 bids were place, thus extending the auction deadline out at least 41 minutes. So was this a great deal? Depends, if you lost the auction, you are out of pocket all the bids you made. If you win, your true discount is definitely lower than 75%.

From my own personal experience, the discount on average was approximately 25% for winning auctions. However, factoring in all the auctions that were lost, I basically broke even. With that result, it was faster to buy gift cards from legitimate secondary markets than to try to win them on penny auction sites. In a future article, I’ll discuss the pros and cons of using and other penny auction websites.

If you are willing to give a shot, please share your experience with us.

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Readers' Comment (2) | Posted by Alex | Filed under: Deals

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