When credit card companies started tweaking terms and conditions to make their cards more and more hostile to consumers, it's hard to be the company that still offers the "right" terms (e.g. Payments above the minimum apply to the highest interest balances first) when most consumers don't even understand what I just wrote.
Similar with airline shopping, seat pitch just isn't visible enough, and even if it was right there next to the price, do most shoppers understand what 28" pitch really means?
A perfectly functioning free market relies on perfect information available to the consumer. Today, we get a price and (usually) a brand name and that's about it. So competition is almost entirely on price.
In cases like these, it benefits everyone to make some regulations setting reasonable ground rules. Freeing airlines from having to compete against 28" seat pitch is like freeing credit card companies from having to compete against predatory terms and conditions.
Yes of course this has an impact on the bottom line. It would marginally increase the cost of tickets the same way the CARD Act made it less profitable to issue cards to certain people, and the same way airbags make cars more expensive.
There are other practices I disdain, like charging extra for a seat assignment or a boarding pass, but those are more visible when buying the ticket and I can more easily avoid it.
I do think if we could get much better and clear labeling on the differences between available seats (pitch, width, recline, power, screen, entertainment, food) it would help a lot. But airline shopping is already very painful, data overload is a real problem.