These penny auctions are just a variation of the infamous dollar auction: http://en.wikipedia.org/wiki/Dollar_auction

I do hope that people who get taken realize what a horrible deal it is after the first try. Sadly most will keep trying again and again.

As a device of gambling/entertainment these "auctions" would be fine if the returns would be somewhat regulated, that is house take would never be above 200% (even 120% would probably be fine).