Actually, this is a very interesting proposition, and one of the reasons I'm NOT a lawyer. Words can be used for more than just communicating <g>.

>>in answering the question, you modified the hypothetical in a fundamental way by assuming the answer, then answered the question based on your assumption and the modified hypothesis, not the one I posed. <<

No, my point was to point out there is more than one scenario under which shill bidding appears. You presented a narrow scenario under which the outcome was not changed by the shill bid. Your scenario sounds more like a store than an auction to me. Set a price and sell it to whoever is willing to pay the price. Period.
You on the other hand appear to have posed a question, looking for a preconceived answer.

You assume my point is >>whether the "rules" should protect Billy Bobb against his own stupidity.<< On the contrary, I never assumed Billy Bobb was exercising any stupidity. It's not necessarily stupid to not know what something is worth, or how much you're really willing to pony up once push comes to shove. With the type of items most commonly deserving of being "auctioned off," if you lose an auction, you may have no guarantee you will ever find the same item for sale again.

>>Billy Bobb can have the expectation you described ONLY if shill bidding is already prohibited. If it is not prohibited, then he cannot have a reasonable expectation that the bidders he's competing against are real and interested. <<

In a true auction format, the question is not always "what is it worth?" so much as "how much am I going to have to pay to own it?" At some point, you may find you are not willing to pay as much as the next guy. The only connection to the item's "value" is maybe some expectation that if other people were willing to pay almost as much as you paid, you may be able to unload it at not too much of a loss. I'm not sure that's even relevant to the issue.

The point here is that, were an "auction" site to permit shill bidding, it would cease to serve as a legitimate auction site, and most people who are looking for a fair auction would be wise to take their bidding elsewhere. Shill bidding MUST be banned for the auction process to work. Period. Webster's defines "auction" as a public sale with each item "going to the last and highest of a series of competing bidders." A shill is not a competing bidder. A shill is a manipulator. If I know I'm bidding against a shill, I won't bid. If I don't know, then I'm being deceived.