> or pay less for the same set of features.

Or pay the same, and the employers/shareholders pocket the difference?

> That's the entire justification of the free market -- corporations benefit by benefiting consumers with better products via competition.

That doesn't mean the prices would drop; if every corporation employs the same technology, and they were roughly at the same level of efficiency, they will stay relatively the same, so the relative costs won't change, and neither will the actual prices. The level of the profit margins will just go up in the industry as the whole, which has precedents in the history.

Just postulating that the consumer surplus simply has to stay with the consumers doesn't translate to it actually staying with the consumers; companies have researched lots of ways to capture it over the last couple hundred years.

You're ignoring what I said in the first part, which is that consumers get more features faster. You're right that prices won't necessarily drop, but consumers are still getting more bang for their buck so the benefits are still there.

And competition between companies ensures that no, the profit margins in the industry don't go up in the long-term. You can look up corporate profit margins yourself. They can go up briefly at times and they can go down, but there's no long-term trend of profit margins increasing over the decades. Competition is alive and well to ensure that benefits do indeed go to consumers in most cases where there aren't monopolies that need to be regulated.