Swoopo.com

An example of the all-pay auction can be see in the website Swoopo.com. They attract users by telling them how cheap they can get highly sought after consumer electronics. There auction works by charging a dollar for every bid placed. Another rule to the auction is that it increases by 15 seconds at the end of the auction if a higher bid is made. An article I was reading in the New York Times talks about the trememdous amount of revenue the seller makes in this auction. It is estimated that the seller can make up to three times the actual value of the item. They recommend that buyers should avoid these auctions at all costs.

An All Pay Auction

while it is obvious that these website will make huge profits I am interested in the reference in the article to a swoopo-bot that will outbid you before the time expires. I can't imagine that being legal and if so what is the credibility of this website. Also, this sounds awfully to me like gambling instead of auctions.
We played this game when I was in high school and true to form our teacher ended up with a large profit of 'class dollars'

I think that the idea of the website is pretty interesting. Obviously, sellers are attracted to it. But who will go there to buy? Maybe some buyers? This makes me think of this article i read on ebay http://www.techcrunch.com/2009/05/23/how-facebook-myspace-and-youtube-killed-ebay/. The article mentions some points about how the reason ebay was popular was because people had the thrill of winning the auction. Maybe thats what swoopo's banking on? It seems that they want people to game the system.

However the idea of having the auction be extended by 15s intrigues me. It removes a lot of the auction sniping that ebay has, and could make the auction more fair. But i guess if ebay implements this functionality, buyers will elave as well, becuase current ebay buyers can get things for a lower price due solely to sniping.

In a way, adding the 15 seconds does make it more fair because it eliminates the possibility that someone will be able to simply wait until the last few seconds of the auction to outbid everyone else by a tiny margin. However, the reference to the swoopo-bot (like someone else mentioned) sounds a lot like some kind of fraud. This is related to the all-pay auction I posted about last week (or around there) where the site owner makes enough profit selling designer purses through this method to make it worthwhile for her to continue buying them full-price and selling them this way. However, all it takes is a single "opposing" bidder to drive up the price of the auction--and what if it turns out the site owner is that other bidder? If she drives the price too high and the legitimate bidders drop out, she loses no money since she already owns the product, and can simply use the item she "won" to restart another auction later. In fact, in this situation, the item never needs to exist at all: it's better for the owner if she always "wins" and merely collects bids while all the bidders assume they merely lost the auction.

When you consider how easily this process could be automated to be done by swoopo-bots (one or several!), it seems like an obvious choice to not waste your money on an online all-pay option.

If bidders could be absolutely certain of all other bidder's identities, would that make the auction more fair? Or is it just impossible, since people could still be "siding" with each other?

Swoopo is not a scam/fraud per se, but because many people don't fully understand it before they start bidding, so many users feel they were "tricked" by the ads. However, scam or not, swoopo is making a killing in almost every auction. Furthermore, because they are the only seller, they control which items and how many of them gets sold.