The real problem for Apple is differentiating their more expensive phones when the most significant thing for end users is the screen size and the camera. Take one of those away and there's not much left to charge for. Their current model is based on artificially inflated prices for big screens. For whatever reason there's a segment of users that happily hand over the cash for what is an overpriced phone. However, it lost them the entry segment; which is why they keep bringing back the 5S/SE formfactor. Without this, they bleed users even as revenue goes up because of the increased ASP.
If they get the bigger 6/7/8 formfactor to the same price, they are cannibalizing their high end range because the difference between that and their premium XR range is mostly not that big. Worse, you can't really tell them apart easily because they have the same design. This is made worse by people using iphone covers. Status and vanity are big reasons for owning an iphone but when they all look the same, you might as well get the cheaper one.
But it's about the price not the actual "size", the Xs has a OLED screen vs the LED screen of the Xr which is way more expensive.
I'm totally fine with Apple coming up with a set of ways to prevent a phone from being perceived as cheap, while keeping a smaller form factor.
In this perspective it's interesting how their current "lower tier" phone, the Xr, is priced lower than the Xs for instance, but got the bigger screen and better battery.
It gives them an opening for marketing smaller phones as more niche models with eventually more engineering going towards keeping it small with the same or better specs than the bigger phones.