Just to play Devil's Advocate...
If it was only certain common items, it would make sense, as long as the cap is reasonable, and adjusts for inflation. Something like the cap being 200-300% of the mean price in the past month... then it could work well.
It would help prevent the AH from being flooded with items at impossibly high prices. I wonder how often people put stuff up on the AH at stupid prices, like a simple fire crystal for like 10,000 gil?
I assume this is, in part, a technique that Square is considering to help combat inflation, discourage gil sellers, and limit scamming, which was a big problem for a large part of FFXI's lifetime.
As long as the price cap is reasonable, and adjusts over time, then really there would be no harm out of it. You aren't going to successfully sell an item for a million gil that normally has a mean price of a thousand gil, and this way it helps prevent scamming, and other malicious pricing games.
EDIT: Wow, playing Devil's Advocate nearly convinced myself to change my mind on the subject. I shall remain cautiously optimistic about such an auction house mechanic.
Hmm...a dynamic cap that's determined by the current mean prices? I guess I could see that. I wonder how it would affect changing conditions in the game, like when an update causes one particular item to suddenly spike in demand. A cap in a situation like that would be a problem. Of course that's all circumstantial.
There seems to be lot of hate on the AH about. I kind of enjoyed it, since I'm one of those people who'd rather just pay a little extra for something than go through exorbitant effort trying to quest it. Wouldn't mind a "buy order" option to set your own buying price for an item on it, then just wait for someone to fill it, though.
A couple points about a dynamically adjusting cap:
While it's a novel idea, it would really serve little purpose (assuming certain mechanics of FFXI's AH, which I have no reason to believe will change. They better not anyway ha).
When you buy something on the AH, even if you overpay 1000%, the seller with the lowest list price is the party you transact with, not the seller with the list price closest to the bid price. Therefore, there's really no benefit to be obtained by listing, using your example, a fire crystal for 10K. You pay the AH fee, and even if someone bids 200K, unless you're the only one with a fire crystal on the AH you aren't going to make that sale--the person who listed the crystal for 99 gil is. The AH isn't a good place for scamming like that, since the benefactors to people accidentally overbidding are the people selling their items at the most competitive prices.
And Eske, you're right about the cap ******** up equilibrium seeking (i.e. efficient) markets when natural supply and demand forces change the price of an item suddenly.
The cap also wouldn't fight inflation. As far as that goes, SE just needs to focus on balancing gil-introducing game elements (killing monsters, selling to NPCs, etc.) and gilsinks (AH fees, buying from NPCs, etc.) more efficiently. They can't do anything substantial by manipulating AH mechanics (besides the fee) that won't also hinder economic efficiency at least as much, and probably a whole lot more.
That's not to say that the cap wouldn't serve any purpose at all. It will prevent people from accidentally overbidding by significant amounts. They could solve this much easier, though: instead of denying bids that seem overly high, they could just add an extra "Are you sure you want to bid this much?" prompt and be done with it. Anyone that still overbids deserves to make the mistake ha.
Thanks for playing devil's advocate by the way. MMOs are fodder for both learning and teaching any non-debt based economic principles (i.e., the good ones haha).