The flip side of course, is there's an issue of practicalities and process. Amazon own their own store-front. If they want to change their prices to have a Christmas sale or start doing stuff cheaper or so they just change the price. If the agency publishers want to do this, they have to ask Amazon to change the price. I doubt Amazon will be okay with getting a whole bunch of price changes from the publishers every week (nor would they want to give the publishers direct access to their store software).
With the way I think it should work, that wouldn't happen either.
I'm saying the way it should work is the same way it works for hard goods. The manufacturer (publisher in this case) sells a big bulk of items to its customer (the retailer) for a set price, after that transaction is over the manufacturer has no more say in the matter. Then the retailer sets his prices based on what they paid for it, how much profit (or loss) they intend to make off of it and then sell it to their customer (the people). To continue this we could point out that once a person buys something from a retailer that retailer can't tell that person how much to charge for it if they want to turn around and sell it too. Walmart, Amazon, Target, K-Mart, etc. don't have any say in how much things go for on e-bay for example.
e-books (or music or movies or whatever) should work this way too. And there are a few ways that a manufacturer could sell these things in "bulk". It's all about creating a contract with the retailer they are selling to. One option could be that the publisher says for X price you can sell Y number of copies of this ebook. Or the publisher could go the route of for X number of days/months/quarters/years you can sell this book and for each each copy you sell you have to pay me Y amount per copy. There are a few other ways I could see this working too.
To be specific: S&S could say for each copy of Star Trek: Zero Sum Game you sell you have to pay me $5.99 per copy. Then the retailer could go and sell it for 1.99 and take a $4 loss if they want or sell it for 10.99 and make a $5 profit. It would be up to the retailer not the publisher to set the final selling price. The silly thing with Agency is that publishers could still call for a $7.99 price on their ebooks, that would just be the price Amazon would pay for it then Amazon (unlikely to take a loss) would most likely sell it for that amount or more.
Given what I just said, this is my whole point that Agency is preventing the hiking of e-book prices just as much as it is preventing the lowering of them. Meaning that pricing isn't the problem with Agency, retailer freedom is.