How could it not be cheaper? No molds (or just one bezel mold), far less industrial design, fewer individual wires. Not to mention the QA requirements for testing buttons vs a virtual screen.

I admit I am completely oblivious to those details. Quite interesting. I'd think 5-6 rolling dials and 3-4 buttons in total are still cheaper than a 8" touchscreen but apparently I was wrong.

They're probably cheaper at the small scale - big panel big price - but at the large scale might not be so cheap: Now you have a point of failure for each of those dials/buttons, the housing is more complex/expensive, you need to make replacement parts for all of those buttons, etc. More training for repair technicians, more parts they have to keep in stock. Possibly more damaged phones because each button is a weak point in the phone's housing.

Screen costs trended down pretty aggressively over time so over the course of a couple years it probably ended up being cost-effective even if it wasn't at day 1. If you're already throwing a relatively sizable high-quality panel into your phone making it a bit bigger may not be as much of a bump up in price.

Economies at scale. I didn't think of that. Thank you, this was eye-opening.

Molds and parts are cheap at volume and I would be surprised if the costs were above a few buck in total, including setup.

That said, a huge factor is assembly, maintaince, and repair.

Touchscreens are massively massively cheaper. Especially for products with warranties like cars. Thing fucks up, just swap out the entire brain+display unit.