Steam is pretty hush-hush about their pricing structure, and from what I gather everyone that sells through them agrees not to spill the beans as well. But from what I understand, they work with developers to set a good price point. I'm sure the big budget studios just say 'you will charge this,' and leave it at that. But indie studios get some back and forth with Steam on what would be the best point to set in order to sell copies. I don't know if the big sale prices are handled by Steam asking the developers if they want to be in a sale, or the developers asking Steam to put them in, or if it works both ways. I do know that devs get a much more healthy cut of sales by selling direct through Steam than they would by going with the traditional boxes-in-stores model. I'm sure Steam gets a nice pile of money as well, though.
Valve has been pretty fantastic about not being evil and abusing their massive market share, but the potential still exists. They have a lot of good will built up, but Gaben suddenly deciding he wants to go live on a tropical island and selling the whole shebang to Evil McEvil and Sons, Ltd. could make things turn real bad real quick. So I'm not worried about the lack of competition right now, but it never hurts to have a backup plan just in case.
Realistically, all distribution is going to go to the direct download model eventually. Barring some unforeseen circumstances that stop the steadily increasing bandwidth availability that has been a constant for the last decade or so, it's going to get to the point where people who want to go somewhere and buy a hard copy of a game will be seen as weirdos. Music and movies are headed in the same direction. So I only expect competition to increase, as long as the industry is smart enough to read the very obvious tea leaves.