"From a lay-person's perspective, all of that is logical. From a Dealer's perspective it makes very little sense and has very little to do with why transaction prices are negotiated and not constant."
Then tell us why prices are negotiated if it not because of the difference between trade-in and new price. Yeah, part of it is volume, but the actual buyer should not have to pay a different price just because a dealer has low volume and gets less carry-back.
The price variation is exactly why people believe dealers deceive them. Whether a dealer deceives a customer or not is irrelevant - the fact that a dealer can negotiate a price at all is what makes customers believe a dealer is squeezing every dollar possible out of a transaction.
The interesting part is, a dealer knows exactly what price they can sell for at the minute a transaction begins. But they won't share that number, ever.
And, yes to P and C above - we live in a society that thinks lying is okay as long as it gets you on top of any bargain. That is one of the things many people fail to teach their kids nowadays ... deceit is not okay. And look at advertising - we're exposed to lies and manipulation so often, it becomes a way of life that's just expected and accepted.
Instead of honesty, we have both sides of a transaction inspecting and investigating the other side because as a society, we have come to expect everyone is a cheat.