"i disagree ... if you think you pay extra at REI because people abuse the system, shop somewhere else ... many people pay extra at REI because they know they can return it if it doesnt work the way they expect"
Don't know if you have ever run a business, but I have. Here is a high level picture of how it works.
Most businesses are focused on product profit margins and margins on EBIT (earnings before interest and taxes). If expenses go up, then prices go up. Companies project what percentage of sales (in dollars) will be spent on warranty, goodwill, and after-warranty adjustments. So yes, if these expenses go up, so do the prices. Companies use warranties as a marketing tool... the sales department comes up with the ideas, and operations executes them.
The good news is that the strategy attracts customers, builds long-term customer loyalty, and generally improves profitability. But it is not a free ride... someone pays for the warranty, and that someone is every single customer -- it is built into the pricing structure. If too many customers abuse the warranty, or the company sells crappy products then it has to raise prices.