Are penny auction for real? Is it ligitimate?

My friend said he won an iphone 5 at that sites, that is interesting but also scary. Please tell me.

Here's how penny auctions work. When you bid, you prepay for that bid. If you don't win the item, that money is lost. Then the site will offer you the item for a normal price so you don't lose all that money. It's a ripoff in a lot of ways. They do well because they keep all the losers funds on each item. So if an item sold for an amazing price, such as let's say an iphone for 10 dollars, they really made several thousand dollars on that one phone because they keep all the loser's bid money. Quite a scam.