I think we need to seriously entertain the possibility that the market doesn't work. Apple made increasingly large phones last year, cancelling the smallest phone in the lineup which was the same size as their largest phone in 2012. Apple also reported disappointing sales, especially as a result of people choosing not to upgrade, and especially in China where average hand size is less than in the US and where (afaik) these accessories to attach to the back of your phone first gained popularity.

How could the market fail to account for consumer preferences in this way? I have a hypothesis: there are only a few manufacturers of top-of-the-line phones, and they want more space for more electronics (including more battery life). If those manufacturers all decide on their own that people want big phones, customers who want up-to-date smartphones will relax their preferences for small phones, and it won't get communicated. And cheaper phones will follow the lead of the more famous and more successful ones. But I think there are lots of other possibilities hypotheses here and the general class of answers of the form "the market is failing to reflect customer preferences" is likely worth investigating.