You're describing what happens in uncompetitive markets (or for status goods, which have inherently weird behavior because they're a signaling mechanism that relies on waste and artificial scarcity as a mechanism of operation, but also inherently nobody actually needs them).

In an ordinary competitive market, margins are thin because sellers are fungible, so charging slightly less than the competition results in a disproportionate increase in sales because customers are just choosing the lowest price, and then sellers keep lowering prices until margins are thin because it's more profitable to get a $0.05 margin on a thousand units than a $0.10 margin on a dozen units.