My professional background is related to this, so let me try to lay out why they might do something like this. Apple is on track to sell something like 220 million iPhones this quarter. Taking your estimate, thats ~$1.2 billion in additional profit. But wait! There's more! Some significant number of people, instead of getting the 16GB, will (perhaps begrudgingly, like me) get the 64 GB version because 16 GB just isn't enough. I'm going to pull a number out of my ass and say that 50 million out of the 220 million do just this. They pay an additional $100, while Apple's cost goes up, let's say $10. So, Apple makes an additional $90 x 50 million $4.5 billion. So we've got an additional $5.7 BILLION just by setting the lowest level at 16 GB instead of 32 GB.
How many customers would they have to lose to make this a losing proposition? Apple makes $400 per phone (not including overhead). They would have to lose a conservative 14 million customers to offset the 5.7 billion.
It's nowhere close to that. They gain customers and market share year over year. Customer satisfaction is the highest in just about ANY industry. There is no reason why they wouldn't do this strategy. Especially in a market where even Apple is feeling the squeeze of tight margins (new Apple products have been having lower profit margins than prior products), Apple has every incentive to push customers to buy the higher-margin products.
I don't mind. Apple's high profit margins fund their R&D, which I think is the best in the world. It allows them to largely ignore their shareholders, who favor short-term profits. They are able to throw away (most) ****** products that don't pan out, unlike other companies who would release a sub-standard product just because they need to recoup on any spent R&D.