Comment by majormajor

Risk-aversion is probably a big reason.

Drop your prices and maybe you capture more of the market. Works best if your product is a perfect substitute and consumers will both (a) immediately know about the drop and (b) be able to switch immediately. And then you can capture some of the lost per-unit profit in volume... but just how much market share would you have to capture to come out ahead of just cruising along with higher per-unit pricing and being more profitable as-is thanks to your costs dropping again? How much would you need to spend on advertising to get the message out, and how does that effect how much you need to capture?

And if it doesn't work, and you lost your margin without gaining enough to make it worth it, do you want to have been the guy in marketing who was pushing for the price cut? At this point yo-yo'ing the prices back up is gonna piss off the customers you do have once again, so you might be a bit stuck for a while.

Add in things like customer loyalty, stickiness, and habits, and "let's try to send the trend in the opposite direction" only looks riskier and riskier. For instance, if Walmart dropped their prices 10% how many Target shoppers do they convert who wouldn't already be going to the usually-cheaper Walmart?

There doesn't have to be anything nefarious going on to explain how markets can result in the consumer losing out, especially after shocks to the system. Let's say everyone was worried that customers wouldn't stand for 10-20% price hikes, but now that they've learned that they can, in fact, get away with it, they independently think it's easier to stay where they are then to try to get into a race to the bottom. No collusion, no "evil" cartoony-levels of greed, but no effective market pressure to fix it immediately either.