So blindingly obvious, now that The Cranky Flier blog pointed it out:
There is value in the upsell.
When American first rolled out increased legroom for all coach seats on the airplane many years ago, the idea was to become a premium airline that people would pay extra to fly. That didn’t happen. A lot of coach travel is viewed by consumers as a commodity. They just want to get places for cheap. So when American removed seats, it increased its unit costs (costs ended up being spread out over fewer seats) and it couldn’t get enough revenue to justify it.
With United, however, Economy Plus was just a subsection of coach. It took the airline years to figure this out, but there are absolutely some people who will pay for more legroom. Some people. United’s Economy Plus has now become so popular and profitable that not only did the new (ex-Continental) management decide to keep it despite biases to do otherwise, but American and Delta have all copied it as well.
United has received a tremendous amount of ridicule for have 31" standard pitch in coach, which is too cramped even for an average person with the newer thicker seats. As a result the newer planes (like the new 787 configuration) and airlines that chose to copy United have to preserve more leg room, and don't see a huge direct benefit from redistributing the space - certainly nothing like the diagram above implies.
They are still losing seats, but they provide a service a lot of people want with enough of a fee to make it balance out, but low enough to sell, and push the plane to full occupancy - something which wasn't happening for years and also really helps with profitability.