As for the effect on the high end market, that requires a rather different analysis. The economic theory behind that analysis is that of monopolistic competition, first developed by the late Joan Robinson in her 1933 The Economics of Imperfect Competition. Profits in a full competition market of homogeous goods are quite restricted, and only possible for the most efficient producers who can benefit most from economies of scale. As a result small cottage producers could only survive by persuading their clientele that their products were in fact different. Hence, if you can indeed persuade customers that a particular product is not a homogeneous good but has some unique properties, you have created a monopoly, and increased your profitabilty accordingly. You are no longer competing on price, and your higher manufacturing costs no longer matter that much. All that this requires is a powerful strategy of persuasion, usually attained by large brand advertising budgets, but increasingly also by a blurring of the distinction between editorial and advertising pages in the media (the audio press is a very good example). The internet has magnified the impact of such strategies significantly.
In short, the growth of the small scale high end industry is the product of precisely the fact that the electronic link of the audio chain had become a homogeneous good sold in a very competitive market, with facilties, power etc the only real differences.
