Swoopo

I came across this website http://www.swoopo.com/ a few days ago, probably by clicking on an ad link on some other websites. At first I saw electronic products sold at ridiculously cheap prices, so I took a closer look...

At first glance, it might look just like a bidding site, but the rules are different here. The three most important rules are:

1. You have to pay each time you place your bid. In fact, you have to "buy bids" before you can place bids. (At the time of writing, the cost is 3 bids per $2.)
2. You can only raise the current price by 15c.
3. Once the price is raised, the auction time is extended by 20, 15 or 10 seconds, depending on the number of bids placed on the auction. (No sniping.)
   

The fact that you have to pay to place bids is strange enough. That means if you place bids but you don't win, you just lose your money for free. Now it starts to look like gambling than auction.

From the second rule, you CANNOT pick the highest price you're willing to pay. This is because in order to raise the preferred price by 45c, you need to pay $2! (I did the math.)

By simple reasoning, you'll know that Swoopo gains a lot of money only from bids that people buy. They don't even need the money for the item from the winner! For example, a PS3 auction that ends at $150 will already earn Swoopo 1000 bids, equivalent to more than $650. Because of this, Swoopo can try to attract more bidders by offering items for free, or at a very low "fixed price".

Swoopo is clever enough to put cash and bid vouchers on auction! At the time of writing, there are 50 bids, 300 bids, $80 cash, and $1000 cash. Since for each $45 raised, Swoopo gains 300 bids = 200$, the break-even point for $1000 is only 1000 x 45 / 200 = $225.

There is almost no way you can strategize enough to become a winner. Because due to the time extension rule, the ending time or price (they're highly correlated) is roughly exponentially distributed, hence it has the property of being memoriless. That means no matter how much you have spent, a new bidder can just arrive and outbid you. Still, some people believe that psychology leaves room for strategies.

I haven't done real calculation, but if you want to play the system, listed below are simple math statements that might be useful:

• Swoopo's break-even point of an item with price $P is $(P x 45 / 200), considering the auction is 100% off (the winner doesn't have to pay for the item).
  
• Given that the ending price is $P, the winner places no more than P / 0.3 bids, i.e. pays no more than $(2P / 0.9) for bids, because there are at least two bidders or the auction is over.
• The maximum likelihood estimator for the rate parameter of an exponential random variable is simply the reciprocal of the average. (You might wanna use Chi-square test before you believe me that it's really exponentially distributed.)

Many people think that Swoopo is a scam, which I believe is more true than false. Also, they present a lot of misleading ads telling the final prices, not the amount of money people spent. However, everything seems clean, like they're not trying to get away with money and not give out items. I don't know if this is considered a scam or not.

All in all, swoopo can be viewed simply as another gambling website, but there's one major difference:

If all Swoopo users stopped outbidding each other, Swoopo would be broke!