By the time DO started competing with Linode, it wasn't worth Linode's time to care about a cheap $5 box. The only problem is that people go to a $5 droplet and stay for a $XXX droplet.
It is so common there is even a term for it, 'Disruptive Innovation' [1].
The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in a new market and later by lowering prices in the existing market.
Linode should have taken them seriously.