Maybe it’s just me, but it seems like reverse auctions are picking up in popularity. Unlike eBay and other traditional auction sites, a reverse auction rewards the item to the person who doesn’t put up the highest bid, but rather the person who has the lowest unique bid. In this way, it is very possible that you can pick up a 40-inch plasma or an Apple iPod for 76 cents… before you factor in any sort of surcharges, taxes, and shipping costs. It makes you wonder, though, how do these kinds of sites make money?

From what I can gather, the general rule of thumb is that they charge each and every bidder a small fee in order to participate. Some may charge you for each bid you make online; others may allow you to play by sending text messages on your cell phone, charging some sort of premium for each message sent. After collecting all these fees, the site might even give away free gifts or a cash prize to some lucky winners. It’s like playing a slot machine… intermittent rewards will keep people coming back for more.

In this way, reverse auctions are “auctions” at all. They function the exact same way a lottery or sweepstake would: you “buy” an entry by putting in a bid, and you hope that you have the lowest unique bid. You’re paying for a chance to win. Will reverse auctions continue to pick up steam the same way that the over-the-air ringtone and wallpaper business has grown, or will it fizzle out as people lost interest?

I have no intention of ever participating in these sort of things. Have you?

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