Market advocates are forever going on about how competition is a good thing because will lead to lower prices; they never seem to take this to the logical conclusion that it will also result in smaller profits.
Wait a minute, profits and profit margins aren't the same thing.
I'll agree with you that a company that consistently maintains a large profit margin could be seen as being potentially fishy. But profit margins refer to a percentage of revenue - they're relative. Profits are absolute. It's entirely possible to have a low profit margin and rake in profits hand over fist - in particular by dealing in large volumes and increasing productivity.
That's also the idea behind competition lowering prices. A simple example would be that Company a tries to increase it's productivity (say by investing in automation) so that it can make it's product more cheaply than Company B, lower the price, sell more of them than Company B (because they're cheaper) and still rake in the money at the same profit margin. It's the very reason, for example, that new technological gadgets always start out hideously expensive but then fall in price fairly rapidly. Compare the cost of netbook computers or blue-ray players from five years ago to today...drastic differences. Or alternatively, the prices stay the same, but the capabilities increase markedly. Such as the way that current standard desktop computers have roughly the same processor power of the high-end high-performance servers of five years ago.
Of course, I'm sure someone will say that any company that tries to lower its costs and increase productivity by automating is just trying to profit on the backs of the people it replaces with machines...so maybe you can't win.