They really didn't. The fact that Linus had to move goalposts to make the Ally look better than the Deck in terms of price to performance ratio is telling how busted the Deck was compared to its peers.
Yet they still did. Dave2D brought up a good comparison when he mentioned the PS5 refresh and the difference between both is night and day. What makes this comparison special is the fact that Sony and Valve are in a similar position wherein they can afford to sell their hardware at a loss since they subsidize those losses through their own stores, yet the Deck OLED has all these upgrades while the PS5 refresh barely has any to justify its price boost.
Better yet, Valve still kept the prices close to the OG Deck while cutting the prices of the OG Steam Decks at the same time.
Prior to Valve changing the game, PC gaming handhelds used to be around $1400-1800, they were unfeasible due to the fact that at that price point, they're competing with gaming laptops that are sporting at least 3060M videocards.
With the introduction of the Deck, even Aya Neo and GPD had to lower their prices from those price points down to $700 if they want to have a chance at competing.