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Swoopo, Psychology, Game Theory, and Regulation

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A coworker of mine stumbled upon the web site Swoopo:

My understanding of the web site proceeded in stages:

  1. It’s ebay
  2. They’re losing money
  3. You can game the system
  4. It’s a gambling site

Caution: if you have a gambling, do not visit this site. Buy a lottery ticket instead. If you have an eBay problem, do not visit this site. Turn off your computer now if you are in both categories.

It’s e-Bay

Well, there are some major differences between Swoopo and eBay.

First, eBay doesn’t charge the bidder to place a bid. On Swoopo, you (as a bidder) need to buy bids ahead of time, at a rate of 60 cents per bid (this used to be $1 when they first started ,so apparently, they’re doing well).

Second, when you place a bid, you don’t pick the price. Swoopo increments the last offer by a fixed amount—a penny, 6 cents, 12, cents—that’s determined before the start of the auction.

Third, the only people selling things on Swoopo are Swoopo themselves. There’s no used stuff; it’s all new merchandise, and only the owners/operators of Swoopo are selling it.

Fourth, eBay (last I checked) had a defined time-limit on all their auctions. However, on Swoopo, every time someone places a bid, the auction gets extended—typically by 20 seconds, but we’ve seen it jump by minutes at a time. (In fact, one of the only reasons I didn’t place money on an auction at this point was that I couldn’t figure out how the auction time would get extended; seemed like there were no rules to the game.)

They’re losing money

While my co-worker and I were talking about the site, we missed the following ounce of gold going for $3.41:

New Picture Yup. That’s right. An ounce of gold is worth around $1100 and this guy bought it for $3.41 (plus whatever he paid for his bids). So, altogether, he got the gold for $78.41 – which means Swoopo made a loss of $1,120.59.

Seems like Swoopo would be losing money on transactions like these. And they are. Except they make it up on other transactions. Consider this purchase of gold for $203:

New Picture (1) Since each bid increased the price by 1 cent, there were $203.13 = 20,313 bids placed. Each bid costs 60 cents, so Swoopo got $12,187.80 in revenue. The gold costs around $1100, so they netted around $11,000 on that auction. Note, however, that the person that won the auction still got a really good deal. He spent around $600 for $1,100 of gold.

You can game the system

So, how can you make sure that you win (and not someone else)? Well, you can wait until the other bidders have fueled the price higher and then just “swoop” in and place the final bid.

Except you can’t do that, because someone else can swoop your bid and keep the auction going.

Certainly, if there are fewer other bidders, your chances of winning the auction are better. Perhaps you can participate in auctions late at night, when people are asleep—or during the day, when people are working. Except the auctions run internationally, so there isn’t that much change in interest. (I checked this by visiting their UK site and verifying that the same items were presented in UK as in the US.)

There’s a bit of game theory here. It reminds me of the case that comes up where everyone is at a party and there are multiple conversations going on. One person (maybe saying something important or may be having trouble hearing) starts speaking a little louder. That causes the people around him to speak louder—and eventually everyone is yelling. Despite the fact that everyone could speak quietly and have the same (or better) ability.

Similarly, if all the bidders knew each other and could trust each other, the bidding could stop early. The final auction price would remain low, and people would place fewer bids (and each bid costs 60 cents). Of course, swoopo does a good job of not letting the bidders communicate. Plus, there’s a risk that everyone may say they won’t place the next bid, but someone might do it anyway.

The only time someone wins the auction is when all the other players say, “Someone keeps bidding on top of my bid. I’m wasting bids. I’m going to wait for someone else to place it and I’ll save my bids for a little later.” So, you basically need all the participants to have the same thought: “I’ll let someone else get this bid.”

That’s pretty low probability. It’s very similar to the lottery: everyone buys a ticket and fills the pot. Now, one of the tickets is going to win, but we don’t know whom. There’s another analogy: it’s gambling. Sure, the casino pays out every now and then, but most of the time, the house wins.

It’s gambling

So, in the end, I started to realize that this site was less about selling stuff and more about getting around gambling regulations. The key thing that determines whether you win is when all the bidders think the same thing (and don’t place a bid)—which is definitely as random as a deck of cards.


A friend of mine came up with an interesting observation: the site allows you to put your bids toward the “purchase price” of the item at any time. So, if you’ve put in 100 bids on a $600 American Express gift card, then, you can buy it for $540 ($600 minus the $60 you spent on your bids). The site calls this “Swoop it now”. If that’s the case, you should always bid on things where the purchase price is a definite value. That way, you can always hop out of the auction and do the “swoop it now” to recoup the cost of your bids. Unfortunately, Swoopo has filled in this hole by only presenting defined-value items (gold, AmEx gift cards) as a bundle with packs of bids:

New Picture

So, if you do “swoop it now”, you get more bids which are only worth something if you’re entering another auction. I have another theory behind this action: it causes people to mentally think, “Oh, I can bid at least 200 times and it’s essentially free.” And, if 10 people think this, Swoopo makes 9x the cost of the bids vouchers its bundling.

Written by PoojanWagh

January 8th, 2010 at 8:48 am

Posted in Uncategorized

One Response to 'Swoopo, Psychology, Game Theory, and Regulation'

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  1. Wow, swoopo has human psychology pretty much down. Unlike Ebay, there isn’t an easy way to snipe the auction and win at the last second. The only way I can see myself bidding on something is if the “swoop it now” price is a price I’m willing to pay at the outset. Otherwise I’m just setting myself up to lose money.


    9 Jul 10 at 7:03 pm

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