Blizzard says that their instant level 90 service was not priced to maximize profit by selling the maximum number of character upgrades. These economic arguments feel like an oversimplification of what's going on here.
First, some numbers and context. World of Warcraft's instant level 90 (the current level cap, soon to be the entry level for the next expansion) service was obviously going to be available for direct purchase, and this week we learned that the price tag would be $60. This is not quite the maximum possible price they could have charged - that would have been $75-95 - but it's pretty close.
($10 for a new copy of WoW to register to your existing Battle.net account, $40 for the new expansion and the instant level 90, $25 to transfer that new character over within your Battle.net account so you can cancel the new subscription. I'm not sure if you will need to purchase Pandaria before you can buy Warlords for the level 90, thus the possible extra $20.)
Why are we playing again?
Blizzard's comment has two interesting pieces. First, they assert that they are protecting the value of having leveled the old fashioned way, claiming that no one would level anymore if the service cost only a nominal fee (such as $10). This seems like an overly economic look at time spent playing a video game. Economics would argue that you have to be very poor before it makes sense to grind for 60-100 hours to save $10, in the process probably paying at least one $15 subscription fee.
The problem with this argument is that obtaining the end reward - a max level character - is not the only reason for playing the game. Many people who choose to level a new character will do so because playing that character is fun. When EQ2 offered a similar service COMPLETELY FREE as an introductory promotion, I went back and forth on whether to use the thing at all, and ultimately clicked the upgrade button on a crafting alt that I don't think I've even logged into since. There's no point in paying to get out of leveling the character - I just won't play it at all.
So who will pay?
Charging the folks who need the service
These services exist and make sense because that leveling game - generally a solo experience for a variety of reasons I discussed when talking about the EQ2 service - is not for everyone. If the reason you want a new character is to play that character in a group with your friends, the experience of playing the game is no longer part of your entertainment. There may be some people who come back and don't want to see any of the old content for any reason (they will get one level 90 with the expansion box), but the primary reason to need an instant level 90 is to remove this entry barrier.
Which brings us back to Blizzard's statement that the service is not set at the price that will maximize profit by selling the most upgrades. $60 is high enough to discourage impulse purchases and might discourage players from bumping up multiple alts (bearing in mind that basically all active WoW players will pay for one of these upgrades with the expansion box). My question is whether the decreased number of sales will be largely offset by the higher sale price. People who have invested hundreds of hours in raiding and plan to continue to do so are going to purchase the upgrades whether they cost $10 or $60. Maximizing the revenue from these folks may end up outweighing the lost revenue from impulse purchasers.
Blizzard may have other reasons for wanting to discourage these upgrades - they make it easy to shed an unpopular identity, and they might hurt long-term retention by removing players' reason to play the game. I'm just not so convinced that their stated pricing economics is the true story behind this decision.