Curveball

This Volokh Conspiracy thread on a student suing over a curved "C" set me wondering: why are curves so common, anyway? Both my schools graded on a curve, which arguably served as a check against grade inflation--but are the incentives for grade inflation really so great that it couldn't be held back by a general agreement among the faculty that a "C" is average?

Moreover, the curve isn't merely for overall performance; it's done on each exam. In some classes, a 55% on an exam can be an A. But why do faculty, particularly at the undergraduate level where the task is mastery of a basic body of knowlege, set exams where the majority of the students can't answer a majority of the questions? Or, conversely, as I've also seen happen, where the difference between an A and a C is a few points, because everyone scored in the high 90's? Is figuring out what your students are likely to know really so hard for an experienced teacher?