So... my first reaction to your comment was "why don't they just turn this into an actual auction, with no price limits? This seems like such a good solution that I feel like I must be missing something."
However, thinking about it more, I think there's a problem with that that's hidden by the nature of the United debacle.
In that situation, the passengers had tickets, and they company was trying to seat their own staff. That is, the potential buyer was the airline, and the sellers were the passengers. So in that scenario, auctioning makes sense, because you can literally flip the buyer and seller roles.
However, in a typical overbooking situation, there are more passengers than seats, so it's unclear who the buyer and sellers are, because none of the "sellers" actually "own" anything definitive. If the tickets are all infinitely valuable to each passenger, no one can get on the plane, and there's a sort of stalemate. Then I suppose there would be a cost to each passenger, and an incentive to accept a price, and it wouldn't be infinite anymore. But in general, the cost dynamics seem weird to me. But then again, I'm not an expert in this.
At some level, overbooking seems indistinguishable from fraud--which can also be profitable for its practitioners.
> However, in a typical overbooking situation, there are more passengers than seats, so it's unclear who the buyer and sellers are, because none of the "sellers" actually "own" anything definitive.
I'm not quite sure I'm following. When the airline overbooks then tries to pay off passengers to accept a different flight the buyer is always the airline.
They're buying your seat back from you to satisfy their contract with someone else. I can't fathom a situation where every seat is infinitely valuable - out of several hundred people surely at least one person will accept a million dollars for example.
Overbooking can look like fraud, but if the airline offers an uncapped ever-increasing payout for a seat then the risk profile increases significantly for them and they'll do it to a lesser degree.
In the U.S., plane tickets are a contract where all passengers agree to the standard overbooking process: passengers who don't have a seat are placed in a standby status. If they are bumped from the flight, they can get up to a certain amount of money and are placed on the next available flight.
It's shitty because no airline offers an alternative to this contract, so all passengers have to accept it... until Southwest decided to stop overbooking.
> However, in a typical overbooking situation, there are more passengers than seats, so it's unclear who the buyer and sellers are
The passengers with tickets are still sellers in your second scenario; to the airline as a buyer. The airline needs to buy back the number of seats that they oversold for which passengers checked in.
However, thinking about it more, I think there's a problem with that that's hidden by the nature of the United debacle.
In that situation, the passengers had tickets, and they company was trying to seat their own staff. That is, the potential buyer was the airline, and the sellers were the passengers. So in that scenario, auctioning makes sense, because you can literally flip the buyer and seller roles.
However, in a typical overbooking situation, there are more passengers than seats, so it's unclear who the buyer and sellers are, because none of the "sellers" actually "own" anything definitive. If the tickets are all infinitely valuable to each passenger, no one can get on the plane, and there's a sort of stalemate. Then I suppose there would be a cost to each passenger, and an incentive to accept a price, and it wouldn't be infinite anymore. But in general, the cost dynamics seem weird to me. But then again, I'm not an expert in this.
At some level, overbooking seems indistinguishable from fraud--which can also be profitable for its practitioners.