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Except they don't. Everything you buy in Hawaii has (had, anyway) 4.17% added. I never saw anybody competing on price by eating some of the tax.
And industry wide I'd wonder as well since almost everything sold in Hawai'i in imported from somewhere else so that purchase price is dictated by forces outside of the tax structure in question.
But yes, there is undoubtedly some price suppression caused by the tax, but the point was to demonstrate the recursive taxing that turns a 4% announced tax into a 4.17% real tax. And that it would work the same way if you want to give someone $1 million, after taxes.
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