...if my perceived utility for a product does not justify the price, I won't buy it.
A few people have said the same thing, and it's true, but it's a tautology; it's true by definition. The real question is, how does your internal price-justifier work?
I have a hard time beleiving that most people aren't somewhat price sensitive.
Certainly. It's a continuum. Everyone's somewhat price insensitive too. (Remember, price sensitivity goes two ways.) How much do I have to lower the price of d20 Barbie before you buy it? And how much could I raise the price of the three core rulebooks before you'd say they're not worth it to you?
The prevailing argument in these price argument threads seem to be that if we raise prices of products, the consumer will merely compensate and pay more, and writing games will be lucrative.
Well, they've tried the converse and found it didn't work. If they lower prices, they don't seem to sell any more copies -- and their own expenses don't go down much.