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Its simple. Separate the auction house into much smaller regions.
These regions would encompass 300 - 500 people. Maybe less. In separating into small regions like this, drop rates would be much more user friendly. Perhaps all these players could see each other in town, much like Path of Exile, and make trading more personal. Maybe even rid of buyouts and make everything bid only.
With this I'd suggest reducing rare item drop rates by up to 80%, but increasing the quality by a good amount. Maybe increasing the minimum stat rolls would do the job. Legendaries could also drop more often, or at least guarantee that they are good.
There should also be more useful stats that show up on items..
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