Companies don't pay VAT on their purchases; the consumer pays the VAT.

Would they sell their products for 20% less; or would they decide consumers were happy to pay at that price so keep the price the same and keep the extra as profits?

But it is effectively paid by consumers... as you say companies already compensate for VAT in the price.

VAT is not paid by companies!

I run a VAT registered business… I discount all the VAT I pay my suppliers against the VAT I charge my customers, and send the balance to HMRC

Every VAT registered company does the same - non VAT registered businesses and individuals pay VAT

You pay VAT between the difference VAT incomes and VAT expenses. Exactly like tax on profits. It’s just at another accounting level. The distinction is arbitrary.