I auction at Realm Breedables and Too Adorable, and none of my three auctions have a grandparent rule. I attend a load of auctions, in support of my friends who breed, and my friends who are auctioneers. I see future sales happen, because of course they do; the right buyer has to be in the audience for any given cat, and it may happen that they're not. Believe me when I say that most of the auctioneers out there feel terrible when a cat doesn't sell while the panel is active, but I strongly believe there is a lot more to supporting auctions, auctioneers, and patrons of auctions than just the buying and selling of cats. How many auctions have I gone to to see a new trait live? How many have I gone to where I've learned something new, whether I expected to or not?
As far as grandparent rules, I've come to feel that it's counter-productive in certain ways. While a new breeder may have time, if given a pass of 2-3 weeks without having to have grandparents, it doesn't necessarily encourage anything but hurrying up to backbreed so that one parent counts as a grandparent as well, especially if they are, like me, trying not to go over a limit of live cats. It doesn't encourage the exploration of "what happens if I pair this cat with this other cat" necessarily, nor does it help in any way to offset the costs of that breeding. And honestly, for me, it sometimes discourages me from buying cats at auction because I know that, as I count as an experienced breeder, that cat will produce boxes I can't bring to auction - where I make most of my sales. Instead, I'll have to pop open more boxes than I normally allow myself, and I'll wind up with 54 cats instead of my self-imposed limit of 30 just trying to earn back some of my investment into a nice cat. Of course, that's just my 2 cents on the matter, and I'm not trying to be controversial. It's up to each market/sim what they allow and don't, period. In real life, though, any breeder is going to sell whatever animal they produce if it's worthy of sale, regardless of how many generations of the line they own. *shrug*
Edited to add: I would also like to add that to me, 'cat flipping' is buying someone else's cat to turn around and sell that exact cat. It's not investing L$ into two parent cats, and then investing into their kibble, etc and selling their offspring. Whether your investment into your cats are L$ investments, investments of time perfecting a line, or both of those things, I think it's a good thing to see some return on investment.