From my own conversations with exchanges -- I think this is just the exchange appealing to layman investors. The exchange wants to appear liquid, and they like

From my own conversations with exchanges -- I think this is just the exchange appealing to layman investors. The exchange wants to appear liquid, and they like to do this by having a lot of shares on the best bid or offer. If you reduce the tick sizes, you'll definitely see fewer shares on the inside bid or offer (even though you'll see more shares on the inside x% for any x, aka. you'll see more liquidity), but the layman investor (e.g. mom and pop, retail traders, people like brad katsuyama, etc.) will suddenly think you're less liquid because the best price now has fewer shares. That's, at least, the strongest argument I've heard for why tick sizes aren't reduced more rapidly.