I wanted a specific domain name of a deceased loved one. I approached the domain parker and asked what they wanted for it. He wanted 200k and escrow. I offered $50. He took my $50.
Of course, determining whether a domain is really in use or not is hard, and whatever criteria are adopted, squatters will try to game them.
But of course, ICANN and registars make way too much money from these people to do anything about it. Isn't capitalism just wonderful?
It is easy to detect the egregious cases like you describe.
But, not all cases are so egregious. I might have no website on the domain, yet still be using it for email. Or, I might be hosting some sort of intranet on the domain and all the public can see is a login page, with no idea of what content lies beyond it. Or, I might not be using the domain at all, and just waiting for someone to contact me with an offer to buy it. I might even hook it up with email that I never really use (but which redirects to my actual email), and a login page with nothing behind it, in order to make it look like I am really using it. How to distinguish these cases?
So, the TLD .family was coming to the public, and I kept my eye on it. I wanted <my last name>.family. I learned a lot about TLDs during this time (which I've now forgotten). There is some kind of pre-buy period where you can buy domains before anyone else at an increased price. It was too much for me though, so I waited for the public release.
Then it went public, but, my last name was marked as premium for $1000/year. I felt this wasn't fair, as I can't control my birth name! So I emailed the company in control of the domain, and they got back with me with a deal. $1000 one time payment and $20/year thereafter. Still too rich for my blood...
The level of amateurism / folks just looking for a quick couple dollars was pretty high and what they asked for / got, even based on their own stories, was all over the map.
Many of them didn't care about what they initially ask for even at the risk of scaring off a sale. A lot seemed to be kids or folks with limited resources playing it as a game for fun / in the hopes of striking it rich.
I ran across one that had my name as a .com (something I'd obviously want), had a bunch of back and forth for several years, once or twice every year, and eventually they realized - ya know - nobody with this name is ever going to pay the exorbitant price they wanted, then they let it lapse. Picked it up for $10 or so, instead of $15,000+.
Some of the very short domain names that map to abbreviated company names in China can still be valuable, or if they're somehow truly unique, but for the most part, domain squatting is a dead end for 99% of the domain names at anything less than a very large scale.