What do you think the gross unit margin is on a copy of Microsoft Office? (obv it's high). Would you consider that it is because it is a "small, niche market"?
What is the unit margin on a printed copy of a Finnish translation of Mark Twain's Huckleberry Finn which is now in the public domain? (Obviously very low). Is that because it is a "small, niche market"?
The view that whether a market is a) small, b) niche, determines price, clearly has its limits.
In formal terms, the price we are looking at is the "monopoly price". It maximizes the profits given a single supplier (as for Microsoft Office.)
If Microsoft Office were more niche, it may cost $20,000, e.g. for excel in use just by a few wall street firms and nobody else -- we are talking about a situation where the software itself is exactly the same -- whereas if it were even more mass market, it may have a lower price.
At the current price for Microsoft Office, it is a steal for Wall Street trading firms doing some quick rough calculations, whereas it is expensive for students and families. Nevertheless, it is set at the monopoly price.
If the product we were talking about were a utensil everyone would want to use, it may have a price at $99 or $50 or even $20, depending on the scale the monopolist wants to hit.
You are right that the price depends on the demand curve. But in a monopoly, it depends far less on the supply curve.
Your argument about the first mover's advantage is not specific enough - can you state your premise more specifically, especially for hardware, maybe given some non-protected innovative examples (such as Pebble versus the Samsung Gear watch)? Then we could discuss it.
Where you say "unlikely that a copycat competitor would challenge someone in a good position." Out of curiosity, would you consider Lift Lab's position currently "good" if it did not have any patent protection?
Finally, you are completely correct that patents allow the patent holder to do a "poor" job, that "doesn't fully reach people who need this product". In terms of execution, how close do you think to optimal is Lift Labs doing in terms of executing on its idea?
For both of the last two paragraphs you could look at these common questions for example: http://store.liftlabsdesign.com/pages/faqs