Is there an escalating arms race between arsons and fire extinguisher manufacturers? This whole issue of packing bigger guns is stupid. A small gun will kill just as well as a large one, and is far more concealable, the arms race argument that gun grabbers stick to is as ridiculous as their wild west shootout argument.
The simple fact is that regardless of the incentives (which is completely nebulous by the way, what exactly are you proposing?) there are people who intend to do others harm. You have been the victims of one of those people yet you still insist that people shouldn't be allowed to defend themselves. You don't being a victim. Other people prefer to defend their loved ones.
Arsonists do not directly fight against fire extinguisher manufacturers. This is more akin to terrorists and security at the airport. The increasing security at airports is an incentive which will garner one of 2 responses: either terrorists will find increasingly clever ways to bypass them or will perform their terrorism elsewhere (ie the streets, the malls, etc). However if your goal is to reduce the amount of terrorism, simply making it harder for them to do it brazenly doesn't necessarily reduce the amount. I'm not saying, give terrorists a free pass, but rather you may want to focus not on the last step, but rather the million other steps that precede it.
I realize certainly a small gun will kill as easily as a large one if the bullet is well placed but that is a huge if.You may disagree, but its pretty hard to use a handgun in actual combat situations. I mean its one thing to be at the firing range putting headshots into the paper target, and another to be shooting at moving people. Even more so, its been well known that even trained police officers at point blank range will often completely miss the target after unloading entire clips when the bullets start flying from both directions. And you want to arm the general public?
After the first few weeks of criminals being shot dead in the streets in the middle of violent crime, they will surely change their tactics. I can easily see them using automatic larger guns to gain an advantage over the handguns the 3 or 4 people in the store will be packing, and I can see them using more frank hostage situations. Lets go back to the store robbery situation. You and 3 other people are in the store all packing a nice handgun of your choice. 2 guys burst in with ak47s and scream everyone get on the floor and keep your hands visible. In that first 3 secs after seeing the ak47, you have a decision to make. You can't shoot them both of course. You can maybe shoot one and hopefully kill him (but will probably just wound him), but then the other guy will kill everyone in the room with his ak. However that 3 seconds passes and you do nothing. They then say they kidnapped 35 year old mother of 3 kids 10 minutes ago and she is tied up in a car with their 3rd crime partner. If the two of them don't walk out of the store cleanly in 10 mins and with cash, she will be shot automatically. If they get the cash, she will live and will be released in a discrete location. They may be lying. They may be telling the truth. Regardless, what good are your guns?
Again, people respond to incentives. Arming a populace will simply force criminals to respond in ways you cannot necessarily predict...