I think the big problem is that the scarcity model is that it has created a certain prestige in the practice. photography was originally a very complicated field, and that kept people out. Photographers were seen as being somehow "special". With the advent of digital though (and dont fool yourself, it IS digital that's the ultimate changing factor), photography is so much more accessible and the equipment previously relegated to the pro is now available to anyone with a few grand or, in some cases, a few hundred dollars.
Now that Everyone's a Photographer (TM), "business" is popping up everywhere. The problem is that the customer base is actually getting SMALLER. Think about it: why hire somebody else when Bob in Accounting can shoot it? Or your cousin Shirley? So, more photographers (greater supply), less customers (lower demand)... See the problem?
Call it Abundance or Scarcity, it falls down to the same age-old issue of Supply/Demand. The balance used to be on our side: not enough supply to meet demand. So photographers could charge insane amounts. Now that it's the other way around, the market is saturated with photographers, many of which are hobbyists, and the prices are tumbling. Even wedding photogs have a hard time charging $2k for a wedding: that used to be the low-end!
There are extenuating factors to this as well, of course. People don't see the cost in digital. When you were shooting film there was the cost of film, processing, scanning, printing, etc. In digital, those first three are completely eliminated. People assume - quite falsely - that digital has no cost. They see the $400 Rebels and go "well it's cheap!". I know: I sell cameras and have a hard time pushing a $1200 D90 out the door: people gawk at the $5k prices I throw around for the D3. Ignorance is bliss, it would seem.
As for how to use the system to your advantage?
The only real way to make your work better than the sea of average that surrounds you is to be a clear head-and-shoulders above the rest in some sense. Be it the actual images, prices, services, etc. The trick is that, for the most part, people focus on price and it has become the main differentiating factor. You have to do something VERY special for people to be willing to pay extra for you, and they have to see the value in that. Most old-school photographers cant get their heads past this and keep offering their same services at the same prices and then complain that they're not getting any business. It's because Joe is selling the same service at half the price. The problem is that people don't see the difference between You or Joe, so they choose the guy that cost less.
It's always been a cat-and-mouse game, but in this case the roles are reversed. You've always needed to differentiate yourself from the pack, you jut have to really show it off now.
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