Why are the people in b) okay with overpaying for something?

Because they're also getting overpayed in a similar situation at a different company. It's in their direct interest to raise the "market rate"

So a significant portion of owners employ each other at each others’ companies?

You're talking about employment as if they're working 9 - 5 in construction. These people are amplified by their networks, they don't work for eachother. The better their networks performs, by connections, or by value, or by whatever metric you want to monitor, the more they perform...

What about private equity firms?