Spoken like somebody who has no idea how that particular market works.

Let's take handmade jewelry for an example, because I happen to know that somewhat. Unless you want to do luxury goods, you're talking mostly beading & wire wrapping. There's a very clear ceiling on the price by mass-manufactured goods from mostly Mexico.

People still want to buy handmade in the US, because they can talk to the seller, because they can influence the design somewhat, because it has a feelgood factor. That gives you room to charge a small premium. That premium, however, is limited. Demand for jewelry is fairly price sensitive, especially given that there's a fallback good that's almost as nice at a lower price.

And so there is both an upper limit to the price you can charge, and an upper limit to what you can produce. (You could manufacture, but it's fairly easy to tell, and so you lose the "handcrafted" clientele)

Yes, in a rational market, you'd fold up and move to higher margins. We know for a while now that markets aren't rational. And the craft market especially is deeply suffused with all kinds of emotions. So, no, that's not going to happen either, because people like making stuff with their hands, and this particular market allows them to finance that.

Maybe save the glib advice next time and ask some questions first?

None of this is true if you have the skills to chase whatever trend is ruling the market.

For eg custom keycaps - what should they cost? i've seen anything from 60USD for brass moulded ones to 200USD for resin ones with miniature landscapes in them(that sell out literally within 1 minute of listing)

Individual maker-types are all over the map, in every way. Making blanket MBAish statements about what's good for them is (a) a fool's errand[1], and (b) rather arrogant in assuming you even know what's good for them.

And even if price optimization is what's good for what ails everyone and we just didn't know we all need to pay 12% more, the result of this lesson underwrites Etsy while complicating everyone else's life. Um, thanks?

[1] Just one of many points one can make here - a large number of crafty folks are very much not profit-maximizers. I know this is true for me (I don't sell on Etsy) - running my hobby like a business would be stupid, because not only will my day job will always pay better, but more importantly, chasing fashions, accounting and caring about competition would suck all the fun out of it.

Says who? It's possible that the sellers have goals other than profit maximization. Maybe they're happier simply providing as much supply as they are able at a price that feels fair.

The market?

Every other marketplace charges 10-15% - Etsy has been a bargain for years. Even eBay will cost a seller more than Etsy, and no one's complaining about that.

To what end? They're still at capacity, Etsy take a bigger cut, and they might not be particularly interested in making more money. Some sellers (I suspect especially on a marketplace like Etsy) might be happier making a product _everyone_ can afford to buy.