This is a really interesting thread, however I am surprised that know one has mentioned the existence of the domestic market as a major contributor to the 'race to the bottom.' If you book an international fare on DELTA, United, AA, even USAirways - most tickets include a free checked bag, a meal or two, and even a few extra inches of seat pitch, a bundled product. Unfortunately, as the consumers has shown, passengers are okay with an unbundled product (Spirit/Allegiant/United, etc) for a 3 hour flight, however on an 8+ hour overnight flight, this would be unacceptable.
Now one thing that is interesting, the economy products, (both hard/soft) on the likes of Cathay, Emirates, Singapore, etc - are far superior to anything offered in the states, and excluding seat width are often better than domestic first on the legacies. Now on these world class airlines (Skytrax 4 & 5 star carriers) the economy product is more expensive than the US competitor on the same route, yet have equal or higher load factor's.
Just a few more things to ponder!