Competition forces everybody to continually do things better. However, I don't think there is enough competition in the camera market. In fact, there seems to be a lot of collusion and co-operation amongst the big players. That being said, I don't think Canon is doing things badly in comparison with the other players. Here is Australia the pricing of the various cameras largely reflects their comparative features. For example, the shop down the road from me has the 60D at $AUD1,268, the 7D at $AUD1,658, D3000s at $AUD1,765 and the D7000 at $AUD1,999 (although I suspect this will drop as more stock becomes available) . Cameras with better build and more features sell for more. Ultimately, you get what you pay for. In addition, I think it is hard to argue that Canon doesn't have a good / competitive camera in all price brackets from point and shoots to DSLRs. Certainly their sales figures show people are happy with Canon's price vs features product placement.
I just think Canon (and Nikon) are taking advantage of a duopoly situation. Camera buyers are accustomed to paying $2,500+ for a full frame body. Why would they want to sell them for less? If there was real competition, somebody would take advantage of new manufacturing processes and build a low-cost full frame body. But then again, if that somebody was Samsung, would people buy it? Luckily for Canon and Nikon, they tend to have the top end of the market sewn up with loyal customers.
In my opinion, the camera companies are comfortable with their market share and profit levels. Why would they want to compete? There are only so many buyers out there. Cutting prices would just cut profits.
BTW, for those who are are curious, Canon does a lot more TV advertising in Australia and I think has always done so. Their ads tend to focus on the cheaper cameras. Nikon tends to do as much photographic magazine advertising though. Nikon and Canon magazine ads generally feature more advanced cameras. 5D ads are very common. Its interesting that someone mentioned the AE-1. My first camera was an AE-1 program, which I bought after Canon ads portrayed it as being the camera used by all the pros at the 84 Olympics. Their advertising works!