Swoopo: will consumers ever win?
For a minute or two, let's just imagine that you've been assigned to create an online shopping site that takes advantage of everything you know about consumer behavior and psychology. Your goal would be to get people to part from their wallet in as quickly a time as possible, all while maximizing your profits without asking for much money.
Is that really possible?
Yes. But Swoopo.co.uk has already beaten us to the punch. The auction site assumes that human beings collective act in a stupid way, and have proven that theory since 2005. Bloggers are calling this new way of auction is “manipulating game theory to tap stupidity, the greatest resource on this planet”, and Swoopo is raking money in faster than the Bank of Money's printing presses can handle quantitative easing.
Here is how it works: customers buy “bids” in advance. Each bid cost 50p. They are sold in packs of 25, 50, 100, 250 or 500. Bids always start at 10p, and there is no reserve price. Every bid placed increases the product price by 10p, and the auction countdown by a further 20 seconds. You can place individual bids, or bid electronically using Swoopo's BidButler. Or you can bid by phone. You also see your current spending on bids and "overall savings", which get continually updated.
So, how do you "win" an auction on Swoopo? By getting very lucky. That bid you put in is little more than a virtual raffle ticket, because there's almost always someone on the planet willing to spend 50p further to beat you. Every time someone bids, the auction is extended for a few more seconds to keep it going for as long as possible. The "last bidder standing" at countdown wins. Swoopo says that winner save an average of 65% off retail.
So is there a way to beat Swoopo? Harvard Law Blog has an interesting guide, suggesting that by having bidders create an "Association of Swoopo Bidders (ASB)", it could collectively shape how bidders work:
One item is posted on Swoopo, and its value is 225$. The Association of Swoopo Bidders (ASB) figures that if the item worth 225$, the highest bid should not exceed 37.5$. (Just follow this formula: highest bid=value/6) THe ASB then makes a dicision that no member should bid more than 37.5$.
Then ASB will enforce the rule, meaning for any rule-breaker bid more than 150$, the rule-breaker’s name will be published on the ASB website immediately, and at the same time ASB will appoint its enforcement force (some members with free bids provided by ASB) to bid against the rule-breaker, who therefore will not be able to get the item or pay substantially more than the price the rule-breaker wanted. The enforcement force will continue to punish the rule-breaker in the future auctions ruthlessly until the rule-breaker apologizes and convinces ASB nothing against rule will happen again.
–Note the point is whoever places the first bid above 37.5$ will NEVER get the item. In addition, the rule-breaker bidder will not get anything in the future.
But as we all know, this is unlikely to happen. Mark Gimein of The Big Money recently called the site “the evil bastard child of game theory and behavioral economics", but also refers to it as "the crack cocaine of auction sites". Some of their policies have received harsh criticism recently, and is provoking some plans to change. The way it is now, you can spend hundreds of quid bidding and receive nothing. Losing bidders simply lost the amount they'd spent on bids, and the site was widely criticized for this policy.
Swoopo plans to change their policy so that it losing bidders can apply the amount they've bid toward buying the item from Swoopo at its retail price. This will weed out some of the less serious bidders, and at least gives losing bidders something they can do with all that bid money they spent.