Fantastic? Yes. You wonder how swoopo is making money at all? If you look at the final winning price of the iPad is $20, then it means Swoopo recieved 20x100 clicks (bids) = 2000 bids @ $.60 each. That means it has already pocketed $1200 for a $499 worth iPad. But there is much more to the economics of pay to bid auctions that what these simple numbers say. Here is an interesting paper about Pay-to-Bid Auctions by Brennan C. Platt, Joseph Price, and Henry Tappen y. If you want to know why it wont profit Swoopo to employ shill bidders fake bidders) who would place bids only to outbid the last bid placed and force the auction to be alive, and thus drive up the price, or if you wonder why any user would ever place the first bid (because they will almost always be outbid), then I recommend you to read that paper. It has some interesting insights.
Swoopo is more about gambling and less about shopping. Now lets walk through the bidders psyche. Lets assume that the winner probably bid 300 times to win the iPad. That means he paid $180 for his bids, and then paid another $20 for final auction price, a total of $200 for a $499 iPad! If you look at the home page of Swoopo, as auctions close, users bid, only to be outbid within seconds, and then, they again bid. In fact, Swoopo provides a bid butler tool, which would automatically keep bidding upto the value of bid credits limit set by user. So why would people continue to bid even when they see others outbid them every 2-3 seconds? Is it the lure of winning an iPad for only $20+(the bid cost, which is hidden)? May be it is a psyche of people to not let go what they lost, even when they know they have very little chance to recover it. I think this is why we see people keep increasing their stakes in gambles they are losing heavily. Rationality demands that we see every gamble afresh. But I think people see new gamble as an opportunity to recover what they lost in their previous gamble, and hence they keep bidding despite having very less chance to win. But with an estimated 1.4million visitors a month, Swoopo is clearly getting a lot users who are ready to pay-to-bid (actually, ready to blindly purchase the lottery tickets called Swoopo Bids), and Swoopo is probably laughing all the way to the bank.
