..On a small map, it seems like whoever wins the bid for the first raid gets a big advantage. ... Also, the loser doesn't get their money back, so in effect the winner pays about 250 credits to get a window of opportunity to expand/attack while the loser is dealing with the pirates. On a small map I think this is a pretty big deal, and again there's no way to control whether or not you win. Am I missing something?
There are other factors involved.
First, say for example in a 1v1 game, both you and your enemy start a bidding war. You bid 1000 and he bids 1250. You loose the bidding and suffer the attck. Several things happen here. First, your bid credits will most likely be there for the next round ( assuming the start of the game and neither of you actually attack each other, causing bounty to be paid ). So, next time your enemy will have to bid at least another 1250 credits to win, assuming you lost a few of your frigates taking planets and some bounty was paid. You could bid a small amount, say 500, and push the pirates his way, forcing him to bid 1750 to win. It never ends. Except he's spent almost 3000 credits to your 1500. Your net gain, assuming you didn't sacrifice your initial frigates on the pirates and used your cap ship. In multi team games ( AI or human ), just let them bid on each other with a little 'help' from you and you'll rarely suffer an attack.
Second, pirates are free XP for your cap ships. They'll level like crazy, and won't be in any real danger. I attack the actual base later on for the XP, wipe all the ships and turrets, and leave to let them rebuild. If you 'bought' your caps to level 3 or 4, a pirate base raid will get them to 5 or 6, level 6 being the goal.
Third, again as mentioned, they make an excellent mercenary force. The more you pay, the greater the attack. The force sent for 1,000 credits is nothing compared to a 10,000 credit mob. Two caps and some static D will take care of this nicely. This opens up some tactical advantage and only costs you credits but not resources for lost ships. While 10k seems like a lot, late game, when you're both close to your fleet cap and evenly matched, a good 10k pirate raid might swing the battle.
On small maps the pirates are a bigger deal, but not that much. They tell you when they're coming ( you can figure out where ). 5-6 hangers, 3-4 turrets, and a cap or two and they die like flies even with an extreme attack. Just kill the seige frigates first to save the planet, mop up the rest. Try not to engage them with frigates or cruisers, it might cost you a ship ( $$ ). Let your enemy waste his money while you level your caps, or hire them later to attack while you storm down another phase lane.
So, USE the pirates. I view them as a resource. Mercenaries when I want them, XP when I don't, and a money sink for my opponent.
And I like the pirate cap ship idea. How about they have an 'Embargo' type ability as well ? Suck out all the money of that system while they're attacking ?