Of course the law of diminishing returns is there, just as it is there in pretty much every "high-end equipment" scene, nobody should really be surprised. The difference from $10 cheap setup to a $300 setup could be big, but going from $300 to $1000 setup the difference probably will be a lot smaller and subtler. People are willing to spend disproportionate amount of money to get the small gains because they want the best. Another example is the high-end PC market. The top of the line Intel Extreme CPUs are usually ~20% faster than the next best CPU, but the price is 2-3x more.
A lot of the price difference at the higher end of things come from price discrimination/inelasticity of demand, but also partially because it is just harder/costlier to make something that's better than something else that is already very good. Also keep in mind that a lot of people tend to exaggerate the difference between setups to better illustrate the difference to people.
Edited by Jd007 - 7/4/13 at 6:58pm