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MattPaul - I'm interested in discussing your point in terms of setting market (although I don't think it has bearing on the correctness of shill bidding). You said:
"But I think you're missing my fundamental point, which is market efficiency. In your reverse example, the price realized isn't reflective of what the highest voluntary bidder was willing to pay -- what I believe is the closest true market value for the card."
I'd suggest that correct market is not determined by what 1 person wants to pay but rather what 2 people are willing to pay and therefore a pure auction is the best determinate of market price. When dealing with rare items, once a buyer has his, assuming identical conditions, the next one would not sell for that much and hence that is not the correct yardstick to use for measurement of what the second one is worth. On the other hand, if market is set by what 2 are willing to pay, then you have a self-correcting system for at least two reasons:
1) The underbidder didn't get the item, and having already committed to spend that much on it, would likely be willing to do so next time. That would give a subsequent seller the correct price to ask and receive. There is certainly no assurance that the underbidder will still be interested, but with the information that we have (that he bid that much on the item previously) it's not an unlikely scenario.
2) It seems more likely that 1 person could go crazy high for a card then 2 people. Setting the market by 1 person means there is an increased likelihood that the price paid was "silly." By "silly" I mean that circumstances caused a bidder to bid incredibly high. An example of "silly" is where the bidder places a crazy high bid because he must have the card in the next 2 weeks and none other are available. If it's set by what two people are willing to pay, it's much less likely that it's a "silly" price. Certainly it is still possible, but much less likely and I hope you would agree that "silly" prices should not be used at to determine market since it's incredibly unlikely that such conditions would present themselves again in the future. While we don't have knowledge that a "silly" bid was placed, I'd prefer to set market in a way that would significantly eliminate the possibility of it impacting price.
If we could eliminate all silly bids up front and had an unlimited supply of bidders and items, then I would agree with you. But I would propose that real-world markets for rare items need to be set differently.
Again, I want to re-iterate that even if I thought market should be set by what only 1 person is willing to pay, I would still think shill bidding is fraud and wrong. You raised an interesting point on what sets market and I am interested in hearing other opinions on it.