h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

Have you seen this auction site? Everything goes for a fraction of its true value, but there is a catch. What looks like a great offer is marred by the fact that you have to pay for your bids.

On some items the price goes up by 1p per bid - which initially seems great for bidders as the final selling price tends to be very low - however as you have to pay 50p per bid what appears to be a low price has in fact raked in a fortune for the company. It is in effect some sort of gambling machine which encourages people to throw their money away.

Imagine they have a computer for sale valued at £1000. They even say if you want to you can buy it now for £1,000.

They start the bidding at 1p so someone pays 50p for the first bid.
Someone else, seeing a computer for 1p bids again so it goes to 2p. The company has actually received 50p twice, once for each bid.

When the item for sale approaches the deadline for the auction people see that it is still only going for, say, £20.00 (that is 2,000 1p bids at 50p each!) so they think they will snipe at the very end, but the company has thought of that and so every new bid at the ends adds another 10 seconds bidding time. So there is a bidding frenzy and the price may go up to £50.00 which still seems like a massive bargain - except the company has received 5,000 penny bids costing 50p each. The bargain has cost the bidders £2,500 among them.

The psychology is the same as the person who thinks just one more coin in the gambling machine could bring the jackpot. "If my bid is the last I may get the prize! (presses BID button and spends another 50p) D'oh some swine has just bid after me and there's only 10 seconds to go, I'll bid again..."