1) Developers will game the system. They give apps away for free to get good reviews and higher ratings. I am more generous on a free app than a paid app.
2) You are baiting users to get your app for free initially and then making them pay for the upgrades.
There are a number of websites/apps with lots of users who look for free apps to try out, and rely on this method to try out some really good stuff.
I see nothing wrong with this, you are giving users something for free that is normally not, and a great way to get new people to try your app. A very valid and welcome marketing technique.
Then you're the minority. Free applications are tried by more, price is a gate, and on Apple's AppStore free applications are consistently lower-rated than paid ones.
> You are baiting users to get your app for free initially and then making them pay for the upgrades.
You have no idea what you're talking about do you? I've yet to see a single paid upgrade, if that's even possible, apart from a "v1" to a "v2" which is paid for by everybody (including those who bought v1)
If this wasn't a good idea, or was considered gaming the system, I'm pretty sure the FAAD (http://freeappaday.com/) for iPhone wouldn't be as popular as it is right now. People love FAAD.