Due to incompetence/apathy. They have no motivation to kill their paying customers.

They do have motivation to undercut the competition and make short term profits. With many middlemen, the bootlegger's customer is rarely an end user. The end-user doesn't know who on the supply chain has adulterated the alcohol for a quick buck, and the lack of enforceable trademark protection and brand loyalty means a distiller will have less oversight on the distribution.

Let the market decide.

There's no such thing as a criminal gang selling bootleg liquor without a government prohibition.

Of course there is. No matter what price alcohol is sold at it will always be cheaper for a criminal gang to sell it cheaper. There's no need for any government intervention for this to be true.