The Small 1/2A glow engines were never a big seller, OS still has the .10 and .15 in the LA series and the .25AX. Other then a few of the House of Balsa planes I only used the smaller .15s in planes like the Gentle Lady or Butterfly. I still have a few .25s from a clubs racing series. I agree, sense the advent of good batteries there is even a smaller call for the little glow engines.
Higher wages in Japan is a reason for the higher costs but you also have to think about the quality of the machining, metallurgy of the castings and steel. Japan makes the finest steel in the world and little things like that bring up the price.
I haven't bought OS in years due to the cost but I still pick up there four strokes used and rebuild them for my own use. I do like having quality products. Because I almost never use two strokes these days I have had very fine service from the cheaper products from China. I just won't recommend them to anyone new to the hobby.