The rationale behind this is that users can still be notified of major release versions without forcing them to upgrade or die (sometimes people continue to support older versions for a bit while the new version gets traction). For example, the new version of Coda when it came out was pretty buggy compared to the older more stable version and app store reviews showed it, but there's no way for people buying Coda 2 on the app store to upgrade to Coda 3 at an upgrade price when it comes out. Having the ability to provide a discount for not only Coda 3, but other Panic software at upgrade time could generate more sales for things like Transmit etc.
I'm not singling out Panic, just a recent example.
While I can understand where the GP's idea of paid upgrades is coming from, the not-infrequent occurrence of apps going from Paid-->Free + IAP is often enough that I can see paid upgrades being yet another way App Store users get taken advantage of.
So, what would you do?
It's easy to envision hypothetical situations and they're all already possible, leaving customers stuck having to gauge how serious a company is and how sustainable their business model will be. Paid upgrades don't change this situation but do offer a currently blocked way for developers to make apps with a long-term plan
A paid upgrade would be a clear signal to users of the free version that there will not be any free upgrades in the future. Some users would prefer knowing that over the uncertainty of 'will this app ever be updated?/will that one bug ever be fixed?' that they get when an app does not see updates for months/years.
As a user, I very much like the current business model. I'm actually more willing to buy an app because I know won't be socked every X months with a fee to update.
It's a very transparent & easy to understand model.
I understand you, as the app creator, wanting to raise more revenue, but I would prefer that cost be front-loaded.
I'm now close to releasing a major upgrade for an iPhone app, but these upgrades aren't going to be sustainable for me without paid upgrades (I don't want the new features to be IAP features)
In the long run, this will also benefit customers because paid-upgrades will help developers add more features to the app. Users who want the new features can pay for the upgrade. Users who don't want to pay more can stick with the older version of the app (and hopefully the app store will make it possible for users to re-install older versions of the app).