I see a lot of posts claiming not to understand the problem with shill bidding. I'll give you a scenario. The key here is that INFORMATION is MONEY.

Imagine your wife's grandma's heirloom china set is worth $400 on the market, but priceless to her. You have recently dropped one plate, and it's irreplaceable. The plate is worth $80 on the market. 6 months later, you see the plate on Ebay, drawing insipid bidding, reflecting relatively low demand, stuck at $40. Your web design business has been doing well, and you can afford $200 to get back in grace with your wife. You therefore bid $200, raising the current bid to $42. On the final day, you see a series of bids in , all by the same person, raising the price to $160. This is the point at which the shiller did not dare to raise the bid for fear of outbidding you.

Effectively, he got free information about how much you are willing to bid. Information is money. It's like when you're bargaining on a used care--you start with your offer. You don't tell the salesman how much money you brought, and then start bargaining.

In the example above, you pay less than the item is worth TO YOU, but more than market, because the shiller was able to tease that info out of you.