I know that because my home has 3 flights a day going to Calgary and Calgary has dozens of flights a day elsewhere with domestic carriers, the cost is lower to combine bus and plane travel.
If you live in a larger center, you will have lower prices. Therefore, if you live in London, England you will pay less than if you live in Saskatoon, Saskatchewan (that is a real city that my Dad used to fly into virtually every week).
I have noticed that prices to fly wherever you want are higher than sticking to mainline carriers which have both volume and the logistics to operate only out of main airports.
I often notice among my circle of friends, many of whom work for the government that for them, price isn't a factor. However, due to my part of Canada, most of us have private cars, and if you're in business for a private firm, cost is a factor. Meaning that if you are flying, you drive to a major center first.
Why do I pay more? As others have pointed out, the population is a factor. Also, it doesn't make sense for a small airport to be expanded in some cities. Last time I caught a plane from my smaller city, it was an 18-seater. If I were to assume that 3 flights a day were fully booked, that means that 54 passengers are going out of that airport. It doesn't make sense to build a major airport for that volume. Therefore, flying short distances is not practical. Nor does the airport have an incentive to make it cheap. They have no or very, very little competition. I'm not expecting to fly out of Milk River off their municipal landing strip in a 747 for 600 bucks to Montreal. But I can fly from Calgary to Montreal, one way, for a lot less. Lack of competition but sometimes it just isn't worth making it cheap.
CK