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I think it's most likely a combination of these three things.
The longer a house sits on the market, the less views it is going to get, and the more likely when an offer does come in it's going to be low. However at the same time if it sits for awhile the overall market could increase. Raising the price will make it "update" and might make some more people see it. Of course, those people will still see that the price was raised. But instead of making a lowball offer on the previous price (if they ever even saw the listing), now they might think "well I'm not going to give them this new price, but something near their old price might not actually be so bad"
Sitting a long time sends a bad message. I had a guy at work looking at our community which is an amazing place, but houses sell very slowly as it is not very well known. He decided not to consider the community because he did not want to be stuck for a long listing if he needed or wanted to move.