I think I may have vastly overestimated your base knowledge regarding how markets work. In order for someone to sell something there has to be a buyer.

I don't think you understand that if you short a stock you aren't guaranteed to actually "sell" the stock. Like most market activity short-selling is often explained in terms of normalcy however if a price drops too quickly, say in the case of LLEX, the short-seller can actually be stuck with the borrowed shares meaning that they make no money when they return them often losing money on fees.

The idea that the market and demand is guaranteed for a short-seller is incorrect. So what short-selling is is not the person C model you've created because in truth there isn't a person C required; person A borrows, person B waits, person B calls on it, person A is obligated to return the security. What the market does outside this deal is literally outside this deal.

Sorry, that was a long way of saying you need to close your short for a lower price than you opened it to make money. If your short alone is what moves the price down, it will be literally impossible to close it at a lower level than what you shorted it at.

Hence my point. What you've described is exactly why there is not a person C. You can't make infinite money on the deal specifically because if you were to (fundamentally) buy the company there's no trade, it's just a purchase, which in turn has the inverse effect if you can't sell it. The fact that short-sales typically don't change stock prices because there isn't a "duplication" at all; there's one owner (hence why the short-seller is responsible to pay dividends etc.) and the normal course is that it is sold at market and then the price (hopefully) drops.

You just explained why short-sales do not change asset prices. The only thing you could argue is that the short-sale order itself, the selling, is going to have some literally immaterial effect because as you said if it had a material effect it ruins everything (or you bought the company, whichever comes first).