Many internet shoppers have heard
of or even used Quibids, a “penny auction” site that entices consumers with
promises of up to 80% of retail prices on popular products like iPads or
big-screen televisions. The way Quibids works is by auctioning off these retail
items with starting prices in the single digits, and each bid that a consumer
makes raises the price by only a few cents. However, Quibids charges the bidder
$.60 per bid, whether or not you win the auction. Therefore, even if one lucky bidder wins an
iPad for $40, it probably took him and all the other bidders hundreds of bids
before the auction ended, resulting in Quibids making a lot of money off of
everyone who participated in the auction.
The idea
of rent seeking is about resources wasted in attempting to gain the rent, or
extraordinary returns you may not find in a competitive environment. In the
case of Quibids and other penny auctions, the rent is the prize sought by the
bidders, and the money spent on each bid is the resources wasted in seeking the
rent. Similar to the Tullock Auction demonstrated in class, penny auctions are
a great way to demonstrate the harmful effects that rent seeking can have on
the consumer, when you start bidding not to increase personal profit, but to
decrease personal loss.
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