People keep paying because there's no other choice on certain routes, short of driving or taking a bus.

This isn't an upgrade or anything, people who wanted to pay to reserve seats could already do so. You could have also not paid, and picked whatever was available, switch with your neighbors, and so on. Obviously, since Ryan Air figured out that they can extract some extra bucks out of that, you're now assigned a place and can no longer just pick whatever is available once you board. This is a standard rent-seeking behavior with no advantage for the customers.