I never said I was happy with the mark-ups, just pointing out that selling more for less is not necessarily more profitable.
To use your own example:
If the watch costs the dealer $200, then at $300 they make $100,000 profit, and at $400 they also make $100,000 profit, but it's only half as much work. That would then make good sense for that dealer.
The answer for buyers that don't want to pay $400 is then to find a different dealer that will sell it to you for only $300.