You're missing a step between 2 and 3, where 10,000,000 people decide to pirate something to try it out, even if it's a shitty product.The problem with this is how the situation should play out versus how it does play out in reality.
In theory:
1) Company releases product for too much money.
2) Consumers do not buy product because they feel it is overpriced.
3) Sales are low, so company lowers price on item to appeal to consumers.
How it actually goes:
1) Company releases product for too much money.
2) Consumers do not buy product because they feel it is overpriced.
3) Sales are low, so companies keep prices the same and blame piracy.
If that doesn't happen, then you're more likely to see 3.1. When that does happen, the company sees it on PB and then you have 3.2.
I agree that there's a lot of garbage products out there, but that doesn't stop people from pirating them. From the perspective of the seller, it's hard to see those piracy numbers and realize your product is shitty, because it seems like there's still people who want it.