The "and then your competition does the same" is precisely what I'm talking about. If their input costs have not gone up, there's no reason they need to do follow in step rather than take your customers away. It doesn't matter whether it happens gradually.
Multilateral increase in margins demonstrates a lack of competitiveness between competitors.
It's similar, but when the price of the product is closer to the willingness to pay, market share becomes important again.
It's also has an impact on what products get made, and investment in r&d. If you fall behind the competition in terms of quality, you loose marketshare.
Multilateral increase in margins demonstrates a lack of competitiveness between competitors.