Sites Ask Users to Spend to Save
Monday, August 17th, 2009
- Image by Getty Images via Daylife
Some people will stop at nothing to snap up a bargain — even if it means paying too much.
That is the paradoxical principle behind Swoopo, a Web site that offers a seductive and controversial proposition to online shoppers.
The site, which started in Germany and was recently introduced in the United States, sells appliances, electronics and other products in auctions that typically top out at a small fraction of the retail price.
This month, a new 40-inch Samsung TV, which normally sells for $1,500, sold for $67.92, and a white LG refrigerator with a price tag of $1,498 went for a cool $77.90.
But there is a catch, of course: Swoopo users are charged 60 cents every time they bid, and those charges add up quickly.
The complicated machinations behind Swoopo and its online imitators are drawing attention from critics who say they prey on human foibles, like the tendency of people to overlook the small increments of money they spend to pursue alluring discounts.
These critics also say that players face long odds in Swoopo’s auctions, where they must compete against people in the United States, Britain and Germany. And they say that Swoopo is making a nice profit on each item when all the bidding fees are tallied.
Competing bidders spent a cumulative $2,337 in their losing effort to buy the $1,498 refrigerator, for example.
Swoopo says it must spend much of that revenue to advertise the auctions and attract customers to the site, which it says had 2.5 million visitors in July, double the number it had a year earlier, and a total of 2.5 million registered users.
“In aggregate, consumers trying to obtain these products are overpaying,” said Glen Whitney, a mathematician and a former quantitative analyst at the hedge fund Renaissance Technologies, who was asked to evaluate Swoopo. “Unless you have an edge over other people who are bidding, and you can get them to subsidize your purchase, you shouldn’t do it. It’s a chump’s game.”
Executives at Entertainment Shopping, the German company that runs Swoopo, counter that the auctions are fun and challenging while offering the possibility of a killer deal.
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