For the last 72 hours, I have spent a good amount of time on discovering the inner workings of pay-to-bid auctions, and Swoopo in particular. I must be one of the early inquirers into the subject, as there is still no wikipedia article or reference to this novel auction method (or I am just inept at searching for the term properly).

Very simply, in pay-to-bid auctions, the bidder pays a fixed amount every time she bids, and the winner is determined when noone else bids before the time runs out. In Swoopo’s model, each bid increases the auction price by a fixed amount, and also adds another 10-20 seconds to the countdown timer. The economics is just too complicated for me to crack at the moment, with lots of assumptions to be made from cognitive psychology and behavioral economy perspectives. So I will comment on some things that I think I have a say: how will these auctions change the society?

I have two arguments:

  1. The auction model simply creates a happy winner and lots of losers. It is very different than traditional auction models (e.g. ebay) where losers actually lose nothing other than the tangible item that is being auctioned. In pay-to-bid model, only the auction winner takes the return on his bid fees, while others probably flock to other auctions to "get back" what they lost.
  2. From a productivity perspective, pay-to-bid auctions are on their way to become the ultimate time sink.

Years ago, people were discussing how captchas (the disoriented words you need to recognize and enter when signing up for a service) were costing the world billions of unproductive seconds every day, as people were spending 5-6 seconds to resolve a captcha. MIT’s Technology Review mentioned the inventor of captchas, Luis von Ahn, feeling the guilt of causing people waste ~150.000 hours every day. He then founded the ReCaptcha project, that uses these hours to digitize books, and managed to erase the guilt.

Pay-to-bid auctions could dethrone captchas in wasting society’s precious time. Take a sample auction from Swoopo: an LG 50-inch plasma hdtv. It was recently sold at ~$90. With each bid increasing the price only by $0.02, customers needed to bid 4,500 times before the deal was finalized. As each bidder is waiting for the countdown timer to reach the final 1-2 seconds before placing a bid, on average, each bid would take 15 seconds to materialize. That means the customers had bid for 19 hours before the deal was over. Let’s say, on average, a customer stayed on the website for 25% of the total duration and there were 50 bidders in the whole auction, the time cost to the society was around 250 hours. One auction, 250 hours. Swoopo.com ended ~75,000 auctions since last October. That would mean, the customers lost a whopping 20 million hours cumulatively in 10 months. It is important to note that the time is really lost: with only 20 seconds left for the auction, you have no other option but to look at the timer with your finger on the mouse button. What would that 20 million hours mean for those people, and for the world?

I guess, with the addition of pay-to-bid auctions, the Time Sink Fantastic Four is finally complete, along with video games, captchas, and Twitter.