Penny Auction Sites Hurt by Glut of Competitors

Over the last few years, Silicon Valley has become enamored of a new kind of e-commerce: penny auctions. On websites like Swoopo, BigDeal.com, and Beezid, flat-screen televisions, laptops, iPads, and other products sell for a fraction of their retail price. There's a catch: Bidders pay a few pennies each time they bid, and each bid delays the ending time of an auction by a few seconds.

The first player in penny auctions, Munich-based Entertainment Shopping, racked up torrid profits after it was founded in 2005, according to investors and entrepreneurs who studied the private company's performance. Copycat operations popped up around the world. Now traffic on penny auction sites is declining, and companies are searching for a business model that works.