Though I will point out that in most of the jurisdictions in the link provided, there's nothing that prevents your scenario - a third party offer is turned down due to the dual agency bid being favored by the sellers because they never received your bid. Only in Colorado, Florida or Kansas is it explicitly prohibited. But at least if it was in one of the other states that requires disclosure (Alaska, Maryland, Texas, Vermont, Wyoming) the sellers would have at least been aware of a possible conflict of interest and may not have entered into a contract because of it.
Of course the reality is that there is very little governing their conduct and behavior. Without a functional "exchange" or disclosure rules, both buyer and seller are dependent on good faith.
But because real estate agents are middlemen in the process, there's an incentive in a hot market to not act as an honest broker.
When the market isn't "hot", a realtor has an interest to move quickly. When the market is hot, they have incentive to move their own listings so they get both sides of the commission. In my case circa 2005, I bid $50k over list via the broker who was managing my home sale. The selling broker "lost" the bid somehow and sold it for $20k over listing price.
7% of 20,000 is close to 3% of 50,000. But... I came to learn later that the selling agent targeted a particular religious community hard, and did a hard sell on insurance, inspection, and even attorneys to buyers, and frequently yielded another 3-5% based on "spiffs" from those providers.
All of these inefficiencies and bad behavior add up and inflate prices.