I'm not too familiar with the H1B system, but one of the issues I have with the idea of an auction is that it hurts startups who are willing to give up a lot of equity but not much cash to an employee.
Today a huge portion of H1Bs are get assigned to body shops who then provide labor to large companies. I'm more concerned with worker exploitation than I am with a few startups who as missing out today, potentially missing out tomorrow.
Even if the equity was taken into account most startup equity (once you read the terms and conditions) is worth ~0. There's a few bigexits warping thenfigures but the median is pretty low.