This is a holdover from the early eBay days where "Wild West" rules existed in the absence of actual rules. It is hard to imagine in today's littany of encyclopedia rules. It was also a time when you could list almost anything via auction and find a buyer which made this tactic all the more chaotic and effective.
Unscrupulous competitors figured out they could either bid up all or "buy" out your listings to temporarily remove them from competing with their items. This was a virtual "wipeout" with no follow through afterwards. There were few reprocussions and these wipeouts either eliminated or severely disrupted the flow of auctions and listings. There would be at least a post a week on the old PowerSellers board from the victim of a wipeout.
eBay added the multi-quantity limit to give sellers a way to mitigate the effects of the wipeout.
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