This reminds me of the arguments about whether popular bands should raise ticket prices on the one hand, or create the conditions for ticket scalpers on the other. Let's say Apple wants to be as innovative in hardware as a company like Essential – and therefore use components or manufacturing processes that aren't available at the scale of tens of millions per quarter. What should Apple do? * Not innovate. Leave this…
There are technologies, like process nodes, that improve on several dimensions, and while I'm sure the military has access to "future" process nodea, the yields are just so dramatically low (and also therefore dramatically more expensive), that it's not really feasible for a mainstream product.
The adgances it will have will be much less profound: more CPU cores, more GPU cores, maybe higher clocking, and a heavier battery to power it all. So, it's simply an attempt to broaden the product line, like the "plus" and (unsuccessful) "C" models.
Also, given that Apple sold a $10,000+ watch, they probably don't mind charging more. Though, it'll be priced to sell (which that watch didn't).
However, given that phones have overshot most people's needs (e.g. 5s iPhones are still selling well), Apple will soon need a killer app that requires all that power... like AR. Unfortunately, there's no indication that AR is a killer app. Who knows, maybe Apple will change that.