This speculation is insane. An Apple watch is no mechanical masterpiece like luxury watches in this price region. No watch lover will pay such prices for cheap Chinese electronics. If Apple pulls that stunt, the are geniuses in marketing.
And I would disagree entirely with your argument. An iPhone [1] is truly a masterpiece of engineering and programming. An Apple watch will have a lot of that heritage, and will sell accordingly.
[1] I would classify most of the highend Android smartphones the same way.