The Structural Paradox of Price Collapse A Real-World Manifestation of the One-Dollar Auction Mechanism in Supply-Demand Systems How Marginal Oversupply Triggers Structural, Nonlinear Price Meltdowns

Abstract

This paper introduces a structural explanation for how marginal oversupply in highfriction markets can lead to severe and persistent price collapse. Drawing an analogy from the one-dollar auction paradox, we demonstrate how individually rational actions can collectively trigger irreversible downward spirals. Using the urban housing rental market in Hangzhou, China, as a case study, we examine the dynamics of platformmediated pricing, where intermediaries lease properties at fixed rates from landlords and aggressively reduce rental prices to minimize vacancy. Recent data shows that average rental prices in Hangzhou fell by over 10% year-onyear in early 2025 [2], despite no evidence of large-scale overbuilding. This discrepancy suggests a deeper structural mechanism at play. We present a graph-theoretic model of demand absorption failure and introduce the Marginal Elasticity Activation Model (MEAM), which captures how minor imbalances interact with behavioral inertia and platform pricing to produce nonlinear collapse.

Keywords: Price Collapse, One-Dollar Auction, Platform Pricing, Demand Absorption Failure, Marginal Elasticity Activation Model (MEAM), Housing Economics, Market Frictions, Nonlinear Market Dynamics