It sounds really fishy to me.  I can't say for 
sure but it does sound a lot like shill bidding 
to me.  But it just as easily could be that the 
other bidder may have bid over their maximum on 
the spur of the moment without thinking.

I've had non-paying bidders before and the 
courteous thing to do is offer to the next 
highest bidder for the price that they had bid 
last.