Do you have any suggestions how we can prove this is not happening?
This is where Bitcoin needs some kind of identity feature in the protocol; so people could only bid from "verified" addresses.
you can't. that's why the whole penny auction concept is broken. it's free for the auctioneer to bid on his own auction, either openly or through a shrill/proxy. meanwhile, each legitimate player has to pay for each bid he makes, regardless if he wins or not. but each buyer has an incentive to bid all the way up to the market price, so the highest bid will always approach the market price. the only way this will fail is if every bidder gives up. but when that happens, the auctioneer has made insane profits, or if the price isn't high enough to pay for the goods, he can always insert a fake bid (at no cost to him, of course).
Due to the possibility of participants spending a lot of money and still losing an auction, or ultimately spending more than the retail value of the item they end up winning, some analysts have criticized the model or compared it to gambling, even when operating without fraud.[5][6][7][8][9] [...] A penny auction may make the seller a far higher price than the item value.[1]
Potential fraudulent practices which can disadvantage buyers even more include shill bidding, where a human or software (bot) bidder covertly acting for the seller places bids which make legitimate bidders continue bidding where otherwise the auction would end, and simply not sending out goods for which a price, albeit low, has been paid.
no rational person will participate in a penny auction. it's almost a guaranteed net loss for all actors.
