As far as I can tell, this is the space industry's "Wile E. Coyote" moment[1]. A long one at that.
This kind of largely unquestioned cost structure ("cost plus" contracts[2][3]) has been going on for such a long time now that nobody in that part of the industry has really accepted that the party is over.
And of course industry players don't actually have to accept that the party is over as long as government pays those old-style prices, which have been outrageous for some time and have only gone up. (They seem to have gone up even more egregiously recently, which might be an indication that industry is actually very well aware that the game is up and is trying to rake in as much as possible while they still can).
And yes, there are justifications, some of which may also be reasons (jobs, know-how, whatever ...), but I am sure that inertia is a huge part of this. If this were being decided from scratch, I doubt the outcome would be the same.
And yes, the current industry is almost certainly doomed. Yes, Falcon and Falcon Heavy are already dramatically cheaper. But Starship, if it works, is something else entirely. Game over.
I did a back-of-the-envelope calculation that showed a fleet of 10 Starships, if reused as planned, having such an increase of capacity over what we have now that the current yearly launch capacity of the entire world becomes a footnote, a few percent of what those Starships will be able to haul into orbit by themselves.
And they're planning to mass-produce these.
Game over.
[1] https://en.wikipedia.org/wiki/Wile_E._Coyote_and_the_Road_Ru...
[2] https://en.wikipedia.org/wiki/Cost-plus_contract
[3] https://arstechnica.com/science/2017/07/elon-musk-knows-what...