Heres a few suggestions I have.
To start it off, rather than having a channel like most games I have seen, I'm thinking there could be an auction button one clicks on to see the various items up for sale. It would be another button similar to the exsisting ones we have now (along the top/side, the guild, shortcuts, info, petition butons, etc.) Upon clicking the button, it would bring up a window. One column in the window will list items currently up for sale. Maybe there coiuld be a text box where the player is able to type in keywords, with a filter button, so that it would filter out the items the player is looking for. Another column next to the item could be used for a minimal asking price set by the person selling the item. And while we are at it, this wouldn't really have to be limited to monetary funds either, to extend on it, people could offer up a series of goods in exchange for the item they want.
Upon double clicking the item the player finds interesting, a new window pops up. This is where the actual bidding for the item is done. Similar to the description box of an item we have in game now, the item's name is across the top, the body of the window could be something like this. The first area would have bid history of the item. What the first bid of the item was, the second and so forth. On the bottom, buttons, the first one could be 'add bid' which would bring up something like your invetory and another window similar to the existing trade window (this way you couldn't make false bids) The player would then select the items they wish to offer up, by dragging them from the inventory to the other window, and by selecting ok, the items offered would then be locked in the players inventory, so they can't get rid of them while the auction is going on. Also, the window with the bid history would then update to reflect the players bid. This would also trigger a system message to the auctioner, that their item they put up for bid has been bid on. More on that in just a little bit. Getting back to the bidder, next to the bid button, there could be a modify bid button, or perhaps, the place bid button changes into the modify bid button once they place a bid. This would allow the player to then update their bid, in case they get out bid for the item, of if the auctioner sends them a tell saying they like the offer, but would like the bidder to add/change/remove certain items from the bid for various reasons. Once a person places a bid, they can't withdral it to prevent people from inflating the auction. Once the person bidding is satisfied, they can then close this window and go back to the main auction window to browse other items and such. Also, to make it easier on the the bidder, the items they bid on could be in a different color/bolded/ or perhaps a check box in a third column to indicate which items they have bid on out of the list.
When a new bid is placed that outbids the old one, a system message could be sent to the other bidders, telling them that thier bid has been out bid. Then, they could go modify their bid if they wish to.
Another option is to not have a system where on bidder out bids another. Instead, players place their offer on a specific item, and then the seller decides out of the bids which one they like best and then accepts that one. Or, should they not find any bid acceptable, they close the auction without having the item sold. In this case, the second window with the bid history wouldn't show who got out bid, but rather it would just list all the offers that have been made by varios players for the item.
On to the the seller side of it. Once the seller decides that the satisfied with the offer, they can then mark thier item as being sold. This way no one else can bid on it. And the item then leaves the list of available items up for auction in the main window. Similar to how the trade window works, the seller could then accept the offer and the two players items would trade. I do see problems with this as with it this way, it would be more OOC than IC since the two players needent be close together to trade items. Then again, this whole setup is more OOC than IC since you're using this magical system to trade items with other people you may never see. Which is why, I'll propse a different solution to the /auction which is much less coding and more IC next. After the auction for the item is over, the people that lost the auction would then be able to use thier items again for other things. An interesting situation would come up though, if the seller didn't have the room for the items they got in return. So if this happens, there could be a check before the seller accepts the bid to see if they have the room/carrying capacity to accept it without dropping the traded items, and if they don't pop up a warning about it and ask them if they still wish to accept the trade.
There would also have to be a limit as to how long an auction can go on. Maybe, one week of IG time? The time limit could be tweaked later. This would prevent items staying in auction forever. To make it a bit more realistic, perhaps if the seller leaves teh game, any open auctions they have automatically get closed without anyone winning. And inorder to win, both the bidder and seller must be online to make the trade.
To be a bit fancy, each sector could have its own auctions. As in, if a player opens thier auction window in one secotr, they will have one list of items, but if they travel to another sector, they will see a different set of items in the auction window.
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Now that method may seem a bit complicated, but more importantly it takes away form the ICness and brings auction even more OOC than they are now. Really, the best solution is to have a in game auction house or an arean one can go to bid one items. Prehaps, incorporating the idea stated above with a limited area would work. As if someone tries to open the auction button outside the designated auction area, they won't see any auctions. This would bring the window version of the auction comand much more IC as the player would still have an easy way to filter everything for sale throught the auction window, but it would still be IC for the most part since all the auctioning is done in a single place.
The other suggestion I have is a much simpler one. But then again, it doesn't help to cut down on the confusion that the auction chat can have now, nor does it really help to bring the auction idea into more of a IC type of function. But here goes anyway.
Simply allow the auction tab to be optional. The system messages are optional, theres a way to not show them right in the settings inside the game, it could be done so that the player could have the ability to show/hide these messages as well. This way, only those interested in auctioning, would have the messages show. And reading other peoples posts while I have been typing all this out, I see similiar ideas like this have been suggested.
I think that's it for now. Feel free to rip this idea of mine to shreads, but I'd prefer structured critism if you can.
Oh, and let me know if you all need pictures, I can add diagrams to help understand the window concept better if you'd like.