As also snailbrain has already said, I don't think auctions are a good way to distribute names. This would just benefit large NMC holders (early adopters or those who are rich enough to buy loads of coins later on), who would then be in a position to control what names the community gets. Even if you mentioned that user names like bytemaster or domob wouldn't be of much value, I presume to you and me they are. So what would you think about someone listening to the network and out-bidding you on bytemaster just because he/she has lots of coins? They may even intend to sell the name to you after the fact, because your initial registration request proves to them you value the name and would possibly pay some extra amount to actually get it.
There are two different issues that I will address separately... early adopters take a huge risk by mining promoting investing in a new crypto-system. It would be unfair if late-adopters were on the same footing as early adopters. Note, even with name coin early adopters get to squat the good names relatively cheaply because they can buy up the namecoin. So lets take 'fairness' out of the equation and focus on highest economic utility which actually benefits everyone. At any time you can buy into the network and start receiving dividends from every name sold. The longer you hold your coin the more purchasing power you will have.
So lets see if it makes economic sense to outbid me in the purchase of 'bytemaster'. Lets assume that it is worth $100 to me, but near 0 to everyone else, so I enter an initial bid of $1.0 Because you know it is worth *something* above 0 to me and you see that I have been using this handle and built up some reputation on it you bid $50. I just made $24 dollars from you outbidding me. So I place a new bid at $55 and you receive $52.50. You still think I will pay more so you bid $75 and I receive $65 dollars. I finally decide to bid $100 and you get $87.50.
At this point I have paid no more than what the name was worth *to me* so I have not been cheated. Lets look at what everyone made/paid:
Me: -1 + $25.5 - 55 + 65 - 100 => -$65.5
Network: $1 + $24.5 + $2.50 + $10 + $12.50 => $50.5
You: -50 + 52.5 - 75 + 87.5 => $15.00
Now lets assume you are some rich early adopter so you decided to bid it up even higher to say $110.
Now I have made $39.50 and you have paid $95 while the network made $55.50.
Recognizing that I have a $39.50 profit, I can safely bid $139.50 and still walk away for $100 cost and you would have made $44.50.
So you decide to call my bluff and bid $150, so I end up making $44.50, you get the name, and the network made $61.00. You had to pay $105.50 net out of pocket. I will not out bid you because the most I can afford to bid is $144.50 without my costs exceeding the $100 I was willing to pay for my name.
So the question becomes: now that you own "bytemaster" for $105.50 at a net cost to you of $105.50... what are you going to do with it? You could go around pretending to be 'me', but we are assuming you are just some rich early adopter who is trying to profit off of late adopters and control who gets what name and how much they pay. Now you end up with a name that only has value to me. I if you don't turn around and sell it to me at a price I am willing to pay, I will take my $44.50 profits and attempt to buy bitemaster instead. Once I own bitemaster I will no longer be in the market for bytemaster and therefore, the market value of 'bytemaster' will have fallen dramatically, perhaps 75% or more.
Conclusion: Everyone should be able to buy the name they want for a price they are willing to pay and anyone attempting to bid up a name too high purely for speculation purposes, would end up taking a loss.
There are two ways to allocate scarce resources: market or ration/price controls. Attempts to fix the price too low will cause all of the names to be bought up by speculators who will then create an secondary market for the names. If you fix the price too high, then people will simply not buy as many names as the market could otherwise use. So what I conclude is that you *always* have an auction for names even with namecoin. The problem is that namecoin price fixes all names to the same price and only 'rich speculators' can afford to buy enough names to profit 'on average'. With my system, everyone can buy a share in the 'name squatting game' simply by holding the currency. So I believe what I propose is inherently more fair.
