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This is a known potential problem. The solution is long term reputation and also a relatively high initial bond to the site to make an account.

In terms of circles of buyers and sellers they can use all the algorithms that people like ebay have been perfecting for years. Not a new problem.

Obviously not water tight, but it seems to be working well enough for these sites to function.

Even more effectively, law enforcement could establish or suborn real traders -- which, you know, they do anyway in drug enforcement, so no reason why they wouldn't just because cyptomarket. Fake traders, as you note, can run into problems with reputation systems.

Most markets have a sizeable fee to set up a merchant account. It is doable but it would be expensive.

Wouldn't they be more interested in going after the distributors? I guess if they nabbed enough buyers, they could kill the market, but it's an awful big market.