For people who road cycle very seriously this will lead towards things like bikes that have a $6000-8000 all up cost with deep aero section wheels, expensive tires, ultra lightweight components to put the whole thing near a UCI-illegal weight, and so on.
It's probably easy to spend $1500 on a road bike combined aero bar-stem package that comes out of a single piece CF mold and has very marginally better aerodynamic performance in wind at >35km/h, but the returns are minuscule.
There is definitely a phenomenon of diminishing returns with increasing money spent above a certain point, that would be difficult to subjectively notice unless tested by a person that rides a very large amount like >10,000 km/year.
While I don’t strictly identify as above (I’ve more sense than to spend $1000/watt, or so I like to claim anyway), I do my fair share of purchasing the extra few watts. I’ve spent an embarrassing amount of time obsessing about what the optimal tire choice is for my next Cat 3 CX race. At least I’m realistic enough to know the hoards of 16-20 year olds with more handling skills and less fear will destroy my every day of the week. Joke is on them because they’ve real life coming to crush them :p
In all seriousness, I know fully well the 5-10W gain is marginal for me at best and will only get me so far. Genes, age and hours in saddle cannot be purchased. Being a late comer to the sport and not being blessed with the requisite body type, I can’t have any one of those three, but I can however throw more money at the hobby, unlike the younger ones can. And why not enjoy myself while doing so and ride around in style.
As for diminishing returns, don’t talk to bike enthusiasts about those. They’ll only be outdone by audiophiles
I think without middle aged men in lyrca spending $10k on bikes, most of the performance/road oriented bike shops in major metro areas would go bankrupt, because the profit margin on some of that stuff has to be insane. Particularly the accessories. Yes, I totally need a $95 carbon fiber bottle cage... Hook me up!
The markup on higher-end parts and bikes is quite ridiculous. I've SRAM Red eTap on my road bike and cassette alone is over $500. Compare that to a Rival eTap cassette at $180 (two steps down) or Force eTap at $260 (one step down) and it is enough to make your head spin. Or if you want to stick to "old technology" and go with 11sp Force/Ultegra, you can get them for $130. I half-jokingly say that I'll sell the bike before any part wears out as it will be more cost effective to replace it.
My approach is to purchase lightly used high end bikes through private sales. Find a trusted source and let them take the initial hit. Covid put a bit of a dent in those plans due to lack of bikes everywhere, but at least there's still some deals to be had as you approach top range. You can forget any deals for bikes under $5000, you're likely to pay similar prices for used as for new.
Back in the day, I probably rode 4-5x more cumulative km per year than I do now. And at that time, I found middle aged men in lyrca with more money than common sense to be equally funny.
Edit: I’m also a ma… hang on, when does middle age start? I may still have a year to go technically! (But not in reality)