This seems a bit backwards. The price and hence profit that the guy can sell you his widgets for is set largely by how much you (on average) are willing to pay

This seems a bit backwards. The price and hence profit that the guy can sell you his widgets for is set largely by how much you (on average) are willing to pay for the value his widget brings you. Saying, hypothetically, "All other things being mostly equal" isn't really useful here I don't think. It's saying: 'assume the iPhone and SGSII generally represent the same value to people' clearly for a large portion of the people, they don't. ( I own a SGSI )