I have seen games of Power Grid, where the power plants are auctioned off at the start of each turn, when a player has their heart set on a specific plant and effectively puts themselves out of the game. And auctions are only one part of that game.
More often than I care to remember, I've seen games of Modern Art get thrown out of whack when winning an auction becomes more important for someone than winning the game. That's particularly bad since you can figure out the maximum value of a painting and money from auctions usually goes into a player's pocket.
Although the worst game I've seen for bad player choices making everything fall apart is technically not an auction game, although I can see how it can be seen as one. That's the venerable Executive Decision by Sid Sackson. It's a game where supply and demand is entirely determined by the players and one player can wreck the whole economy. When played well, it's brilliant but when played poorly, it's a train wreck.
All of that said, there are ways that designers can help mitigate poorly bid auctions throwing games out whack. For instance, in For Sale, everyone will get a house or a check each round, no matter how poorly they've bid or how bankrupt they might be. Poor choices won't kick anyone out of the game.
The best game I've seen that manages to balance auctions is Ra. It does this primarily by only limiting the number of times you can win an auction and limiting how much you can bid.
And, mind you, with players who understand what is going on and aren't going to be silly, auctions are a lot of fun. They create a metric ton of interaction and tension. And, if if you need to teach someone how to judge auctions, games like Ra and For Sale are great tools to do that, as well as just plain great games.
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