by Michael Caldara
Cato Institute
July 30, 2014
Penny auction website like Beezid and Quibids advertise the opportunity to win brand-name items at very low prices, but charge every bidder – win or lose – a multiplicity of small transaction fees that can be sizeable in total. The fee structure resembles a lottery, prompting some regulators to argue that penny auctions may be a form of gambling. To date, the penny auction industry is not subject to any special regulations, but some argue that it should be regulated as gambling. The flaw in these arguments is that the definition of gambling requires that a reward be offered in exchange for money on the basis of random chance – yet there is nothing random about the outcome of penny auctions. They are predominantly skill-based. Moreover, the primary justification for regulation of gambling is that it is an addictive behavior, which does not appear to be the case with participation in penny auctions.

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