Here's a heretical statement: the auction house in Diablo 3 actually was not a bad idea; it was just badly implemented. The real problem, in my opinion, of the vanilla Diablo 3 economy was that there was no balance of forces between buyer and seller. Blizzard implemented a "tax" on sells in the auction house, but the effect of this was to push prices ever higher because the sellers were not getting as much money as they desired. In fact, some would set the starting bids and buyout prices to account for the 15%. Further, there was no cost to the seller to continuously cycle exorbitantly over-priced items in the auction house, many of which were absolute garbage. Worse yet, the nature of the RNG and itemization meant that there was very little choice for players other than to seek upgrades through the auction house. The end result was complete frustration with a hyper-inflated market flooded with junk goods.
In my opinion, the solution to this problem would have been to eradicate the tax, as well as the 10 items posted limit, and instead impose a 0.5-1.0% upfront fee on the sellers to post items in the auction house. This small percentage would have immediately put downward pressure on prices and eliminated junk items that don't sell. In addition, it would have automatically limited the number of items sellers are able to post on the auction house due to the sellers' limited funds to post auctions. At the same time, the fee, being as small as it is, does not put the seller under such extreme pressure that they are required to bottom-out their prices due to losses from non-sales; instead, the costs of posting items in the auction house could be easily made from normal item farming as well as profits from successful sales. Instantly, the 2 billion gold and $250 items would disappear from the auction house because of the extreme risk of unmitigated losses from non-sales; 0.5-1% of 2 billion gold is 10-20 million gold, which the seller would have to recoup from farming and sales of other items each time the 2 billion gold priced item fails to sell (a similar situation would exist for the RMAH side with $250 priced items that sit nearly indefinitely in the auction house). For items that repeatedly fail to sell, the seller is forced to either lower the price or cease posting the item (creating an instant item sink as the seller will be likely forced to vendor or salvage the item to make space for other items more likely to sell).
Basically, having this small upfront fee could have automatically kept prices in check without lending too much power to the buyer to bottom-out prices and automatically kept the auction house cleared of junk items. I think this would have kept the auction house a viable design component and kept the overall game economy healthy and flowing. In addition, Blizzard would have been free to adjust the health of the economy by moving the fee up or down within the 0.5-1.0% depending on the level of inflation and the level of quality of items in the auction house.
Interestingly, after writing all this, I realize the counter-point to my original thesis, that the auction house was not a bad idea just badly implemented, is that there is a strong possibility the game would still have reduced to "AH simulator" where people are playing the auction house rather than playing the game. Likely that problem, however, is mostly likely a result of Blizzard so strongly tying the drops to the distribution of items in the auction house, forcing players to seek the auction house for upgrades.
Certainly, as the game existed prior to RoS, Diablo 3 was almost entirely a vehicle of pay-to-win micro-transactioning. However, I'm not sure Blizzard's decision to nearly eliminate trade, except for a brief 2 hour period among members of the same party during which they can trade recent drops acquired while they were partied, is entirely the best. Although, I could see the decision for purposes of attempting to destroy the gold seller/farmer black-market.