Sorry if this is a dumb question, but does a single party control the difficulty level of Ethereum and Bitcoin? If so, it seems like they have massive control over the market. If not, how does it work?
You have it backwards. A 20% increase in difficulty would mean that a block was only being mined once every 18s. The intuition is that if there are fewer blocks, then it is harder to get one.
I think this change is due to the etherium difficulty bomb:
https://www.google.com/amp/s/themerkle.com/what-is-the-ether...
The specifics of how Bitcoin does it can be found here: https://en.bitcoin.it/wiki/Difficulty
Solutions to the meaningless problem that must be solved to "win" a block are rejected if they don't match the network difficulty, so setting it low on your computer just wastes your computation entirely.
The difficulty constant is determined by an algorithm that takes into account the average time that it currently takes for a new block to be mined. It tries to balance difficulty so one block is mined every 10 minutes, on average (if blocks are being mined too fast the difficulty increases, if blocks are taking too long to mine it decreases). This algorithm is part of the "bitcoin protocol" and you can't just change it in your own mining code because the other nodes in the network will not recognize your blocks as valid if you use the wrong difficulty constant
> Does it follow that if most people in the network are duped into a ridiculously high difficulty, that it will be impossible to mine more BTC?
This is kind of what has already happened. Nowadays there is specialized bitcoin mining hardware out there which is has driven the difficulty into the stratosphere. Bitcoin mining using CPUs and GPUs has become unprofitable, which is why the small miners have moved on to alternative cryptocurrencies where they won't need to compete with specialized hardware.