Regulators adjust tick sizes to balance two failures. Too wide, and spreads are artificially expensive for takers. Too narrow, and queues become worthless, displayed depth thins out, and liquidity providers stop bothering to quote.
Modern regimes are tiered rather than flat: increments may depend on price level, on average spread, or on whether the security trades above or below a threshold. Sub-dollar securities almost always get finer increments.
Example: under a tiered scheme a stock quoting an average spread of 0.6 cents is moved to a half-cent increment, while one averaging 4 cents stays on a penny. For the first stock, a round trip taking both sides falls from 1.0 cent to 0.5 cents — on 5,000 shares that is $25 saved per round trip.
Related: minimum-price-increment, sub-penny-rule, bid-ask-spread, odd-lot-quote