Yeah, I doubt the people paying $200 each way on a trans-US flight are going to hold out for $10,000. Once you're at 5-10x of your ticket price, people who actually have flexible schedules are going to be pretty interested. On most overbooked flights this needs to attract <5 people, so hard to imagine the passengers taking "the airline's money hostage".

The problem is, risk management for big corporations still requires these kinds of guarantees against such events, improbable though they may be, in order to quantify the downside. There's a big difference between:

1) "Come on, you can't get 100 people to collude." vs

2) "There is a law that ensures our per-passenger liability saturates at $1350 plus re-booking costs."

For similar reasons, they insure against a hundred different possibilities and require low-personal-judgment protocols to comply with the policy terms.

So pay some trivial amount for insurance and let the insurance companies quantify the risk. Or refrain from overbooking. I see no problems here, just different solutions.

Insurance would be pointless for this problem. Insurers aren't magic risk-vanishers; they'd still specify an upper bound on their payout, leaving the airline with the unbounded amount, but the entire problem here is to upper-bound the downside!

That only leaves a) a law saturating the liability, or b) a contractual provision (and law validating such provisions) that saturates the liability. It still would explicitly prevent the possibility of colluders extracting an unbounded amount to be bumped.

You could buy an insurance policy that caps at, say, $100 billion, and then plan to go out of business if it somehow takes more than that to buy out someone's seat.

Or you could avoid the Rube Goldberg and just be upfront about the "buyout option"/"bid max" you're reserving on every ticket.

Or you could avoid that Rube Goldberg and just pay what it takes. The risk of a multi-million-dollar payout for a few oversold seats is lower than the risk of, say, being put out of business because your negligence caused one of your aircraft to crash into Manhattan and you end up being liable for tens of billions in damages.