Some in here are missing the point. 99% of people aren't going on Amazon, Ebay, Swappa or anywhere else besides the carrier to buy phones.
Just like 99% of people aren't paying $600 up front for the phone, it'll be on contract for 2-3 years. Before it the cheapest iPhone 16 you could get was at $800. $599 is still an easier sell than $799 even with basic features stripped out. I see it selling well enough even if the XR back in the day did what it's meant to do for the lineup way better
All that said it's overpriced, but that's every Apple device lol. And no, there isn't a market for small screens anymore. Apple gave those people online screaming for one exactly what they wanted two years ago and it was one of the worst selling iPhones ever. Possibly the worst, but they don't give data like they used to anymore