This rests on the assumption that a starship launch costs SpaceX more than that. The whole starship program is a gamble that they can make cheap, fully and rapidly reusable rockets. If the marginal cost for a starship launch is more than for a partially-reusable falcon 9, then the project has failed (or is still in development)
1) SpaceX isn't a public company; among other benefits, there's substantially less pressure to maximize profits.
2) Starship launch costs don't need to compete with F9, they only need to compete with the other competition.
Also, it's worth repeating that the goal of this entire endeavor is reaching Mars. The above state of affairs isn't a coincidence, but a very deliberate part of Musk's plan. (Also, luck.)
To be sure of hitting the target, shoot first, and call whatever you hit the target
I wonder if that is entirely true.
There may still be a market for smaller bespoke launches that SpaceX won't want to cede to competitors (though this depends on the cadence of Starship launches, the latency of getting a payload included, and so on), and SpaceX may benefit from keeping F9 around as a platform that allows further iteration on the engines (though this depends on estimates of the increased risk for Starship launches that have a mix of engine versions).
The tyranny of rocket equation suggests to me that you will have to burn a lot more to lift a lot more things to burn for the payloads that would have been in a different rocket.
I would like to be shown the math that it actually takes less fuel with a bigger rocket.
Reusability is a spectrum. Falcon requires a nontrivial amount of inspection and refurb between launches, while Starship is aiming for jetliner levels of prep.
Musk is also aiming to drive down the capex costs as well. There's less complexity for unmanned cargo hoist missions. I think the target for Starship is low tens of millions USD, basically cheaper than Falcon Heavy, but more reusable, with more capacity.
I think the only thing that's not cheaper, is liquid methane is a bit more expensive per kJ. They are roughly the same price per kg, with RP-1 being more energy dense. But then again, I could see SpaceX vertically integrating and driving that cost down too.
Here's another way of putting that: SpaceX has designed it so F9 and Starship payloads will be interchangeable. That's not quite the same thing. You can't just take an F9 payload and bolt it on top of an Ariane rocket.
> Starship is being designed with the intent that it will cannibalize all Falcon 9 launches eventually.
Sure but that's just going to take a long time, particularly if F9 is, say, sub-$15m per launch. There's a lot that still has to be done for Starship (eg the landing system, the crew component).