Why do luxury cars cost more than equally equipped normal cars?

For example you could probably get the top trim of a Honda Accord with leather seats and all the add-ons for around $35,000 but a base model Mercedes C-Class costs around $40,000 base MSRP and doesn't have all those features. Is it true that you are just paying for the name?

They're not equivalent - you're comparing apples to oranges. There's more differences between a Honda and a Mercedes than just features in name.

Sit in a Honda, then go and sit in a Mercedes and you will see straight away why the Merc costs more. The Honda is built out of cheaper materials and is no where as near as solid as the Merc.

Better quality, better materials, more features, better performance… They all cost money.
Some houses sell for under $75,000. Some houses sell for multimillions of dollars. But they all have the same basics: bedroom, bathroom, kitchen.

You're paying for the stylist, engineer, person who designs the interior, and also the marketer - yes.

You are paying for the name.

Because buyers are paying those prices.

It is an American phenomena that customers want to pay money on a cheap car to dress the car up. There's no way a Honda Accord should cost as you indicate. In fact, the cheapest model of any brand of any year DOES NOT SELL. So, factories do not make them. In 1997 I wanted an Acura CL with manual transmission and cloth seats. I had to wait three months until the factory made one at random. Could not be ordered. The best selling Toyota Corolla, a cheap car with a 140 HP engine, is the S trim model. The engine transmission, etc. Is identical. The S brings certain trims luxuries. We're funny/strange about cars. We're embarrassed as to being cheap so dressing cheap cars is accepted. The car makers love this trend as this is how they may super profits. Is not Mercedes-Benz selling a $30,000 new car made in the US? Last time I checked this car was selling like hot cakes. A cheap luxury car? Go figure. As to the "luxury" brand, it is all marketing and the materials used as well as the low number of cars made. A Honda Accord is not a luxury car.

You are paying a premium for the image and branding.
In days of past the extra money did indeed buy many better quality parts and add ons not available to ordinary cars eg electric windows, heated, powered seats.
Over time mass producers have followed desires of masses for the extras and in competition with each other driven prices down,
Now it's mostly premium simply for the name. Eg oil filter for say an ford engine made by same manufacturers to say jaguars, supply identical part ( bearings are another example) but the ford part costing factory producing same amount as premium part will sell ford part at one fifth of premium brand part.
We can look at history eg spitfire sports car indicator stalk, also dame par number for triumph herald.
Herald is cheaper, sports car having prices image etc sells for four times the amount yet is identical part.
So bottom line. People want to pay more to separate selves from the masses and show off wealth and get prestige.