This discussion comes up all the time and the answers many have given are true. A lot of this has to do with expectations, we have come to expect the kind of economy of scale you see with many mass produced items (think tv's, whose prices have plummeted) in trains. The problem is the same market forces that can produce a cheap tape measure for a couple of bucks, made in China, is also a mass market. Lionel trains and 3 rail in general are limited markets, you don't have millions and millions sold, and when you produce these items the cost of production is spread over very few units, so the price is going to be high.
Plus with limited size markets, companies to make a decent profit have to make more/per unit. If a company makes 2000 items, and sells them with a buck margin, they only make 2000 dollars, if they sell them with a 10 buck markup, they make 20,000 dollars. I have heard arguments "well, if Lionel priced them right, they would sell 20000 items, with a buck margin, would be the same thing". The problem with that is the assumption that Lionel is pricing themselves out of a mass market, and that is the fallacy. The reality is there isn't any huge pent up demand being held back by price, if lionel dropped their prices by 50% they wouldn't see demand double, there just aren't enough people potentially interested. If a Lionel starter set was 100 bucks instead of 250, I doubt it would increase sales that much. Supply/Demand curves also take into account the potential market, if people cut the price of Foi Gras or Truffles to McDonald's prices, I doubt they would gain all that many people eating them, it is kind of the same thing.
For that pricing model to work is a chicken and egg thing, Lionel and the other companies would have to spend a lot of time and marketing effort to put trains into the public conscience, so they could sell, instead of thousands, 10's of thousands of an engine, much more for other things, but that would be a sunk cost that they would need to recoup, which in turn would affect the cost of the product. Put it this way, Lionel et al don't exactly put up Super Bowl ads or even on the cartoon network or on network tv, they advertise in focused magazines like O Gauge RR and CTT, so their marketing costs are small.
As far as comparing prices, you have to be really careful for that, those magic price magnifiers, like the value of a dollar, aren't always so effective. Take a look sometime at tv sets, things like changes in technology make a big difference. In 1953, that tv with the 10" black and white screen was a very, very expensive item, it was probably in the hundreds of dollar range, today you can find 32" HD flat panel tv's for a couple of hundred bucks last I checked...so how do you even compare, when today you are getting a product that is infinitely superior to the unit back then, and costs a fraction in terms of real dollars?
Likewise, a 1953 lionel catalog price was probably pretty close to a street price, back then discounters didn't really exist, among other things I seem to recall in an article about Lionel in the 1950's that discounting below a certain level was covered by fair trade laws, and in the early 1950's my mom bought my dad a bunch of electric trains as her first Christmas gift to him after they were married (1952), and she said that they were purchased at a discount but it wasn't all that much. These days, you can get things for 80% of MSRP or maybe even less, that wasn't true back then (and if you lived in an area where all you had was the local toy store or hobby store, even less likely you would get a discount). There was no direct merchandising back then, and the big discount houses didn't exist, those came about in the 1960's. It was a different world, so that makes comparisons difficult.
In terms of why have prices gone up, only the manufacturers know, part of it is that the cost of doing business in China has gone up quite a bit, even though workers wages there are still not exactly great, to say the least, they have gone up, and the cost of commodities has gone up in China, in part because of the Chinese government's decision to devalue the Yuan to spur exports, so the strength of the dollar is outweighed by the cost inflation (China has to buy commodities, devalue the current, costs more), plus shipping and so forth is expensive. The other answer is that they are locked in to manufacturers there, it is next to impossible to switch, so the producers there can hold them up for higher prices, and what are they going to do? Switching to another producer is not easy, so they have them by the short hairs.
Too, I also suspect it may reflect a declining market, so while there are people willing to shell out at the old prices, the same people will groan but buy at the new prices, too, so they are raising prices potentially (and that is only speculation, since their books are closed) to make up for declining market size for many of these products.
That doesn't mean I am defending high prices or liking them, just saying that they don't surprise me in the least bit. The nice part about a niche market like this is in the secondary market, because the market is not that high the value of used gear is going to be a lot cheaper than a much larger one would be.
