Why would a flood of cheap bicycles affect the business of higher-end bikes, when their customers were oh so knowledgeable?
Because they weren't knowledgeable, that's the whole point. They were "bad" customers, not the "good customers who make for good products". Pretty sure you misread what is some admittedly hard-to-parse writing.
Maybe there were masses of unknowledgeable customers and too few knowledgeable and wealthy customers for a higher end market to be sustainable.
High end bikes are a huge leap in price from casual bikes, at least today. A $300 bike is perfectly adequate for normal transportation. An entry level mountain bike actually suited for trails is about $800. If you want full suspension, that's $2,000 at a minimum.
It's hard to think of other markets where the premium is as large as it is in the high end bike industry.
A $300 laptop is perfectly fine for normal computing. An entry-level MacBook Air actually not irritating to use is about $900. If you want a full-sized 15″ MacBook Pro, that’s $2,000 at a minimum. The range is higher if you consider desktops.
But there are plenty of products where the top-end is a couple orders of magnitude more expensive than the entry-level. For example, the car market, from used junkers to brand-new custom luxury vehicles. Or the meal market, from McDonald’s to Michelin restaurants.
Because they weren't knowledgeable, that's the whole point. They were "bad" customers, not the "good customers who make for good products". Pretty sure you misread what is some admittedly hard-to-parse writing.