They are differentiated by processing power, RAM, etc.

To, continue the RAM analogy Honda created the Acura brand to have higher levels of customer service so their 30,000$ TSX could better compete with BMW's 30,000$ M3. Thus, Google by only offering relatively expensive instances can better target the Amazon's most valuable customers.

Your Honda versus Acura muddies the comparison. Acura is a luxury brand. The consumer gets clear value-add through additional comfort, improved build quality, better customer service, etc. The differentiation is clear. The target customers are also different.

In the Google/AWS example, additional power/capacity can either be incremental (10% more RAM, etc), or class defining (web server versus super computer). There may be other attributes that stand apart, but everybody seems focused on price and cpu/ram. I don't know AWS well enough to honestly compare, but is Google's service incrementally different, or does it provide a capability that AWS doesn't offer?

Performance. I believe other comments in this thread have described the way that the lower tiers for the two services don't quite match up.