My theory is a little less cynical. I actually have a real world example, too!
I think it is because domain name investing is all about long shots, hope, taking a chance, swinging for the fences, digging in the dirt for a reason why a domain could return 100x. An auction feels like the owner of the domain has given up, they've taken all of their shots and missed, they're saying: I don't know how to sell this domain so I'm going to take whatever I can get for it. And that means, for me to buy the domain, I must know something the seller doesn't... sometimes that is true, but often, it is not.
So, the real world example:
your current auction. I got a notification when you posted it. I thought the auction's structure is very interesting. I've watched every bid. The auction has 3 domains. 2 of them are domains that are, to me, junk, I don't care for them, not interesting to me at all. The 3rd domain, though, that domain looks very, very interesting. And the price is really good. And yet I haven't bid... because I'm trying to work out
why would someone put such a good domain up for auction? What am I missing about lp.vc?
You are an experienced investor with a great portfolio. lp.vc is a very good domain, if I saw that come up at an expired domain auction I would almost certainly bid on it... but in your auction, all I've been thinking is, why? I'm convinced I could turn around and sell that domain tomorrow for $5k+ to one of a few venture capital firms I know. And yet, I've not bid, because I am
more convinced that I must be missing something: if I can sell that domain for $5k tomorrow, why can't you? There must be something you know that I don't.
I think there are maybe some deal structures that could overcome this concern and make auctions more compelling. Off the top of my head, if the domain came with an
overage covenant I think that would, counterintuitively, make the auction more compelling. If there's an auction that reads, "I still believe this domain can be sold for good money, I don't
want to sell this domain, but I need to raise money to cover some renewal fees, so I'm begrudgingly auctioning it, with a requirement that a portion of any future profits return to me" it sounds terrible at first (what? I'm buying a domain and then I have to pay the seller more? ridiculous!) but actually... if I can pay $500 for a domain today, sell it for $10k / $25k / $50k in a few months, and then I pay the seller an additional 10% of whatever I sold it for, so what, I'm still up ~$8k / ~$22k / ~$45k! That's a great deal.
I could be alone in how I feel about auctions, I might be overthinking, but that's my less cynical view