The ugly truth is, aside from Bladeforums knife knuts, most people don't care about knees at all. Millions and millions of people go about their everyday life not even carrying a knife. We account for a fraction of 1% of the populace, so when you get right down to it, the cutlery industry is catering to a very very small fraction of the consumer. So when the joe blow average consumer realizes he needs a knife, he's not going to buy some big folder that takes up a lot of room in the pocket. He's not even gonna spend much money on it. So, most people, even those who need a knife, is not going to buy a large knife. This is the market they had to cater to.
Victorinox is the worlds biggest knife company. They make more knives than any two or even three of the 'other' companies. Their most popular selling knife is the little keychain classic. Tiny. But it sells like hot cakes because most people don't want to bother with a knife at all, and if they do, they want it as small and light as can be.
Another truth is, most cutting jobs can be done very well with a couple inches of steel. two to two and a half inches is fine. Look on most construction sites and the most used knife out there is the replaceable blade utility knives. All of a whole inch when extended, but it's used to cut sheetrock, strip wire, and a lot of other very rough work. YOu could say the Stanley utility knife is the most used "hard use" knife out there.
Another truth is, living in the 21st century, there's no wild injun's coming to scalp us, none of use are making a living skinning buffalo, and few of us are high speed low drag operators. Most of the knife industry is pure ego driven and BS hype.