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Hi,

I just placed a bid, a $1  addition to the last bid, and got an instant notification of being outbidded by another person.
I placed another + $1 bid and got an instant reply too.

This looks fishy to me.
Please what exactly is going on here?

Hello,

Thank you for contacting us.

Indeed, we use a proxy type of bidding for our User Auctions. You may place a proxy bid higher than the current minimum bid. If someone else places a bid, the system will automatically bid for you until your max proxy bid amount is reached. For a better understanding of how the bidding system actually works please refer to this article: https://www.dynadot.com/community/help/question/how-to-proxy-bid .

Should you have any questions or concerns, please do not hesitate to contact us here: https://www.dynadot.com/community/about/contact.html.

Best Regards,
Dynadot Team

Really?

They are proxy bids.  You can place a bid that will automatically bid up to your proxy bid price.  So if you are willing to bid $100, and the auction is only at $10, it will only bid the lowest amount needed to beat any other bid.  

See the example here - https://www.dynadot.com/community/help/question/how-to-proxy-bid