I'm sure the do their math but if they make more with higher income freelancers the current state of affairs in the platform does not reflect this - personally I feel it is the contrary as there is more incentive to charge bellow market rate.

Perhaps Upwork makes more in volume if workers race bottom. Or they are really dumb. Lets hope some insider post anonymously and explain the contradiction.

It's better for them if the money gets put in their escrow, and then they ban the user, confiscating the money.

But then they don't get money from that user ever again.

It only makes sense to do that if they suspect that is the last job their user will take. Otherwise it's better to keep the user happy and keep taking a percentage for all their future work.

You're thinking way too long term.