I always feel that shops are free to set their own labor rates, and the customer is free to accept or decline. Therefore I never say someone is high or low, rather that the market sets prices.

That said, I'm more on your side here. While they're entitled to charge to install pedals, the accommodation of waiving the install fee would have gone way to gaining good will. As for the second issue, I understand that they want to be paid for time, but I think they should have told you up front, that you'd pay whether they succeeded or not. Otherwise, charging on a contingency fee basis (you pay if they succeed, not if they don't) might have gone down more smoothly.

Way back over 40 years ago, I got good training in retailing at my first bike shop job. My employers bought large quantities of a really high quality bell (chrome platted brass) with the stores logo. We sold these for $3.00 which was decent dough, given that a 3-speed bike sold for $45.00. But every bike sold was delivered with the bell installed - Free. The owners felt that after a sale was made, even if the customer negotiated a discount or freebie, he still wanted to deliver more than the customer expected.

Nothing makes a customer happier than a surprise freebie, so it's not about the money but the principle. Your shop would have been better served say pedal install $5.00 -- but we're happy to do do it free for a good customer like yourself.