This was one of the topics discussed at the North Carolina Knifemakers Guild meeting.
The purveyer performs a service in the form of advertising, salesmanship, inventory, and travel and time. That service has an equivalent cost to the maker, as Sid pointed out, consisting of travel cost, lost time in the shop, etc. If the maker traveled to the knife show, he would have to add these costs to the cost of his knives in order to make the trip worthwhile. Also, not all makers are good salesmen.
The upshot of this is that the dealer isn't actually marking up the cost of the knife per se, but incorporating his service into the final cost of the entire process.
As such, when the maker sells his knives directly, it is wise not to undercut the dealer's prices too heavily. As with any other products, if a manufacturer offers true 'low cost direct retail pricing,' that manufacturer will quickly find themselves with few retailers and the burden of advertising and exposure are likely to increase. If the dealer markup is considered as advertising cost for maker exposure, then the cost of advertising is incorporated into all the products, not just the ones that happen to be on the dealer's table.
Of course, that's the theory but it's obviously a case by case issue in reality. After all, if things worked fairly and makers charged at least decent blue collar wages for the time they spent making each knife, nobody would be able to afford them.
