Wow you must feel really good putting it to "the man" like that. By man I mean some random sales schlup. Take that system!
You are correct in that I over-simplified the entire decision making process among consumers when I posted my example.
But by "profit", I meant overall profit, not just profit per sale. I thought that part at least was clear when I mentioned that it was possible for profit per sale to go up but profit to go down. That's what I meant, anyway.
Another factor consumers use when deciding to purchase something is how kindly they feel toward the store. Which is where the idea that "prices would be lower except for all that fraud" comes into play. If a business can deflect bad feelings about their prices away from themselves then people will feel less hostile, and thus more likely to buy their products, without changing the prices at all.
There are, of course, several thousand other factors that determine whether someone will buy something ("Product X is cooler", "Store Y is closer to where I am right now", "Company Z destroys rainforests and rapes puppies", "Bill Gates is a doodoohead", etc.) All these, and yes, even the cost to the company of some feature, will go into determining the price.
And, sometimes, they'll even do something at a loss, or hardly any profit at all, if it maximizes profit in another section of their business. (Notice how a drink at McDonalds costs more than a Big Mac, though the cost to the company is an order of magnitude or two less.)
The trouble with money is it costs too much!