The shadow track effect would apply after the showdown is completed (knockout, escape, or villian defeated) so yes that's a way to turn it into a "I win or everybody loses" scenario in a competitive game. Also remember that evil elders are no longer town elders and killing them in a showdown doesn't move the Shadow track.
I thought that the Shadow Track effects are applied after the end of the current Showdown Fight Round, not the end of the whole Showdown. The track movement occurs only after the win/loss check. Same thing is true for effects triggered off track movement (no increase in stats in the co-op game in the middle of a given Fight Round). Somebody should verify that.
It may be that in the co-op game the track movement happens at the end of an individual Fight Round and not the whole Showdown Fight Round.
I don't think that in either case that this happens at the end of the entire Showdown.
Usually I don't get much movement on the Shadow Track as I dismiss some Elders after just one Showdown Fight Round. If you have the Something Wicked expansion it's got some ways to keep Elders alive and almost anything that heals an Elder keeps them alive for one more Round.