I think the simple answer would be economies of scale. As more and more customers sign up, they can drive their per-server costs down significantly. Their labor cost per customer would also decrease significantly. Meanwhile, your run-of-the-mill VPS provider is sweating decisions like "do I rent another rack" or "can I afford to hire another engineer"...
Could this be rephrased as, "Why is linode so damn expensive?" I don't know the answer to that question. Maybe Hurricane Electric is both unreliable and expensive.
I am paying about $18 per month for my linode instance. I am not going to migrate to $10 a month VPS for a saving of $8 per month. Linode knows this and is under no pressure to drop their prices.<p>It would be a totally different story of mu hosting needs costed me $1000s.
Hardware are getting cheaper & faster. The same is with Storage. Virtualization Tools & OS are mostly free. Worst if I compare the US VPS prices against those in Europe. E.g HostEurope or Leaseweb.<p>VPS just dun make any sense.