Okay, I just took a quick look at penny auctions, since I have never heard of them.
So, you pay every time you bid, whether you win or not. Some sites also want the winner to pay for the final bid amount, but that is nothing compared to the amount of money the collect for all the bids.
Here is the first item I looked at through a simple search and clicking the first thing I found. Someone got a $299 iPod touch for only $16.20. The final "price" was $52.27, but the bidder only put in 27 bids and it does not appear that this site adds the final value to your price. If you buy in bulk, you can get bids for the low price of $0.60 each. Great deal for the winner.
However, since it went for $52.27, that means there were 5227 bids on the thing. At $0.60 each, the site collected $3136.20 for a $300 iPod. That is a nice return for them. On one item. Even the previous item that sold for a mere $8.85 really collected over $500 in bid sales. Sure, there would be some free bonus bids in there, but there would probably even be some priced over the minimum. Even if you use an average of $.30 per bid, it is still a crazy amount of money.
Given that
some penny auction houses actually have scripts running to do shill bidding, this whole concept is really shady.
I am surprised it isn't illegal.
EDIT: I just looked a bit deeper and the site that I linked does make you pay the final price in addition to your bids. I misread that at first glance. Well, that is even more money for them.