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I definitely think Apple and Samsung can do a smaller premium phone if they want to as Apple makes the lion's share of profits in the industry and Samsung is the only other manufacturer that makes a significant amount of profit. Heck Samsung can probably do a smaller midrange phone as well. I do not think it makes sense for other manufacturers as they make 3% profit and targeting a very vocal but demanding minority isn't going to help them improve that.
Small phone users should also temper their expectation, I saw a lot of comments from people saying they didn't get the iPhone mini because they expected the Pro Max's specs in the mini form factor. They have to understand that the cameras on the biggest flagships occupy a lot of space and it isn't feasible to bring it to a smaller form factor. Increasing the thickness might help with the battery but that's about the only component that benefits with an increase in one dimension.
Every time there is a small phone thread here or on reddit most of the comments are from people complaining that there is no small phone with the equivalent features of their near 7-inch flagship. People do not seem to weigh size in the same way as other features and are not willing to make compromises for it. Small phone fans need to think seriously about how important and practical all their supposedly "essential" high end features actually are versus physical size. There have been plenty of chances to buy and own smaller phones in the past and these people didn't buy them because they weren't perfect. This is the result.
Yeah it's strange some of them expect the exact same specs as the Pro or Ultra phone in a smaller form factor. Some sacrifices have to be made to fit components in a smaller form factor as you cannot overcome the laws of physics. I've seen many ridiculous comments saying manufacturers can fit the same cameras and all the sensors along with a bigger battery if they made the phone thicker. It's almost as if they expect the bigger phone to get neutered to maintain parity.