I still wonder whether shorts need to compete on interest, except at the feed price. It could be simpler to treat all offers above the price feed as 0% interest, assuming all shorts are rational.
If there are no orders at the feed price, this implies that nobody is willing to short at the feed price even at 0% interest. So the rational thing for short orders at higher prices to do would be to also offer just 0%. Otherwise this is an additional and unnecessary cost to offer to the longs. So let's say the first order in the short queue sits above the feed price at 0% interest. If another short wants to get set more urgently, then instead of offering 0% + a bit at the same price, they can simply come in at same price less a bit, with 0% interest. At the feed price this is no longer possible, so interest sets the priority.
Now in theory there might be a subtle difference in outcome to the shorts, because price is an immediate cost, whereas interest is a cost borne over time that depends on the holding period. Maybe this wouldn't make much difference in practice if shorts can simply take their holding period into account when they compete on price. Open to thoughts on this.
Practically, this would mean that only when a short is at the price feed, does its interest offer get taken into account, and above the price feed it is always treated as zero.