Sorry for the late reply. I wanted to take some time and give a more detailed explanation. At least to the best of my abilities :)
I attached a zipfile with my quickanddirty testrig. The zip contains:
* gendata.py  The script I used to generate testdata
* testdata.lst  My testdata set (for reproducability)
* tester.py  A simple script using ``timeit.timeit``.
I am not sure how sensitive the data is I am working with, so I prefer not to put any of the real data on a public forum. Instead, I wrote a small script which generates a dataset which makes the performance difference visible (``gendata.py``). The data which I processed actually created an even worse case, but it's difficult to reproduce. In my case, the dataset I used is in the file named ``testdata.lst``.
I then ran the operation 5 times using ``timeit`` (tester.py).
Let me also outline an explanation to what it happening:
It is possible, that through one "merge" operation, a second may become possible. For the sake of readability, let's use IPv4 addresses, and consider the following list:
[a_1, a_2, ..., a_n, 192.168.1.0/31, 192.168.1.2/32, 192.168.1.3/32, b_1, b_2, ..., b_n]
This can be reduced to
[a_1, a_2, ..., a_n, 192.168.1.0/31, 192.168.1.2/31, b_1, b_2, ..., b_n]
Which in turn can then be reduced to:
[a_1, a_2, ..., a_n, 192.168.1.0/30, b_1, b_2, ..., b_n]
The current implementation, sets a boolean (``optimized``) to ``True`` if any merge has been performed. If yes, it reruns through the whole list until no optimisation is done. Those reruns also include [a1..an] and [b1..bn], which is unnecessary. With the given dataset, this gives the following result:
Execution time: 48.27790632040014 seconds
./python tester.py 244.29s user 0.06s system 99% cpu 4:04.51 total
With the shift/reduce approach, only as many nodes are visited as necessary. If a "reduce" is made, it "backtracks" as much as possible, but not further. So in the above example, nodes [a1..an] will only be visited once, and [b1..bn] will only be visited once the complete optimisation of the example addresses has been performed. With the given dataset, this gives the following result:
Execution time: 20.298685277199912 seconds
./python tester.py 104.20s user 0.14s system 99% cpu 1:44.58 total
If my thoughts are correct, both implementations should have a similar "bestcase", but the "worstcase" differs significantly. I am not wellversed with the BigO notation, especially the best/average/worst case difference. Neither am I good at math. But I believe both are strictly speaking O(n). But more precisely, O(k*n) where k is proportional the number of reconciliation steps needed (that is, if one merger makes another merger possible). But it is much smaller in the shift/reduce approach as only as many elements need to be revisited as necessary, instead of all of them.
