If the idea is to prevent cybersquatting, why wouldn't one be able to renew a domain they already paid $850 at a price much closer to $12 than $850?

$850/year is insane, full stop. You are comparing $850 to a 5-figure cybersquatter, but they only steal your money once. ;-)

If it was an up-front price only, it would be a lot more than $850 at initial registration.

But the relevant (and desired) incentive with an ongoing price is that if the registrant is no longer utilizing the domain name, they are much more incentivized to dispose of it in favor of someone who will use the domain name if the holding costs remain non-trivial.

It is an absolutely ok price for any profitable business. Domains like that are expected to be owned by real businesses, not just cybersquatters, trying to sell them later to profitable businesses. Try to find prices that cybersquatters are asking for 5-letter domains - $850 is nothing in comparison.