I am very saddened to find out about Swoopo today, in light of the other scams that have been going on right now. So moved that I am, it was hard for me to focus on work. I have to get this article out, and tell the world: SWOOPO IS A SCAM.
Now if you have some patience and curiousity on why Swoopo is a scam, read on:
One afternoon, I was in “Game Theory” class, and our professor David Housman ask the class to engage in a game. David was to sell a hundred dolar in an auction, with a starting bid of just two dolar, with one dolar increment. The highest bidder will walk away with the $100 after paying the bid amount. So if there is only one bid, s/he walks away with $100 - $2 = $98 dolar for nothing!! The only catch, the rule specifies that the ’second highest bidder’ has to pay his/her bid without getting anything.
Try that game in real life, you will for multiply your hundred dolar!! Initially, greed would motivate the bidders, as they are driven by the potential of the money gained. Soon as the bids reaches the fair falue, the potential gain is reduced, but the potential loss for the second bidder increases. This potential loss would then drive the bidders not to loose money, and they would continue to bid well pass the $100 value. Even the winner would loose money. The only guaranteed way not to lose is not to play. Can you see that this is a scam ?
Now let’s consider how Swoopo works. Here are the main rule (there more and there are variations):
- The auctioned are run on a specified time duration.
- Bids starts very very low, they lure people with very high potential gain.
- Each time bidder places a bid, they increase the bidding price by $0.15.
- Each time a bidder places a bid, they pay bidding fee of $0.75.
- Each time a bid is placed, the auction duration is extended.
- The winner gets the goods for the bidding price, which is typically way lower than the street price.
Okay, the rules seems quite inocent, right? Everything seems reasonable. Most people would not count the mathematical implication of that $0.75 bidding fee that they pay.
Let’s consider the ’scam’ that David showed us in the class. In that auction, the second highest bidder has to pay while getting nothing. In Swoopo’s case, it’s not only the the second highest bidder that pays for nothing, but ALL bidders pay the bidding fee, regardless if they win or not.
Just like the classroom scam, it was initially greed that drives the auction. But soon remorse would be the bigger drive. Remember, all bidders carry some cost! They would certainly want to get something to reduce the lost.
Let’s see this real auction that I watched as I wrote this post.
An Xbox 360 Red Elite Edition & Resident Evil 5 was to be offered at $160 when I got to the site. It was just 2 minutes left on the clock, and the auction gets heated. The several contenders who eyed the item started to bid more towards the end time, which unfortunately would also increase the auction time. Because of the high bidding frequency, the auction time gets extended 30 minutes, and during that time the price go up to over two hundred towards the end time. But again, bid frequency increases again just in the nick of time, postponing the end of the auction, and increasing the price. Finally, the auction ends with the selling price of #389.79, only $10 less than the street price. The winner pays an aditional $669 for bidding fee, so the total cost of that Xbox is about $1000. But is that the only income that Swoopo gets? Remember that the losers also pay bidding fees. For this item alone, Swoopo gets about 2600 bids, worth about $1900. So the total revenue for that Xbox is $2200. Is that not a scam to you?
I know that Geithner has been tough with AIG this days, but I hope the government would hire some good Game Theorists to catch these Scamers. I personally consider Swoopo’s scam as more evil than Madoff’s because they target lower class people who has less to spend, and quite likely less power to fight back.
Please help me spread the news, Swoopo is a scam. It should be closed as soon as possible.
written by very anoying blogger : Ezra Nugroho. http://www.ezran.org