I understand that Apple did not make enough money to make it worth their while to continue the iphone mini line. However, it does seem like there is a profitable business for someone there given how beloved it was/is.
I only traded out my iphone 12 mini just recently for an iphone 16 pro (likely the last apple product I will ever buy but thats another story) and aside from the camera it is basically the same. Just heavier, awkward to hold and slightly worse designed.
No major player wants a smaller screen because it has downstream impacts on the pipeline of addictive material and ad pixels they can stuff into ocular nerves.
There is demand for larger phones, yes, but manufacturers also charge more for bigger devices and most of that is margin. Following their own logic, they also charge less for smaller phones.
If your customers are sticky, then many of the people who buy the smaller phone would have otherwise bought a bigger phone for more money. Introducing a smaller phone brings down profits.