Tuesday, July 20, 2010

Why You Are a Moron if You Use Beezid

Like everyone else, I saw the Beezid.com commercials on TV and thought that $95.49 is an unbelievably low price to pay for a 55” LCD TV and $591.23 is definitely way too cheap for a car. So, here’s the “scam” (I say “scam” in quotes because they’re very forward about how their website works):

As the commercial says, each bid increases the amount the winner pays by only $0.01. But, how they make money is that each bid costs at a minimum $0.60 to purchase (200 bids for $120). So, even though they will sell you an X-box for $30.00, they’re making at least (3000 x $0.60 =) $1,800 in money that people have spent on bids. Not only that – when the timer gets down to 20 seconds or less, it starts blinking red. If someone else bids (which, they will), the timer resets to 20 seconds again. Since it’s an all or nothing contest, people will keep bidding to keep from losing what they already invested.

We learned about this in one of our Carnegie Mellon negotiations classes. The teacher offered up $20 and had students bid on it in minimum $1 increments. So, it’s easy to see that once two students are bidding and the price reaches $11, the teacher will make money ($11 from one student, and $10 from the other). But, each student has an incentive to keep bidding because (s)he can make money on an individual basis all the way up to $19. Once the price reaches $20, “oh shit” mode kicks in and they both must realize they’re just fighting to minimize their losses, while at the same time increasing their losses.

Please don't let anyone you know stoop to using this site for morons. Just stick with E-bay and Craigslist y'all.