I think that's a very reasonable way to look at it. But it still means that the auction strategy doesn't always work, because water flowing to me is a different product than water flowing to the auction winner.
Those are differences in the buyer/seller rather than differences in the product. It's why people value something differently, not why something is a different product. Even if the water is in the desert in both cases, you might still value it less than someone else, e.g. because you already have some and they don't, but that isn't a difference in the thing being sold.
