Well, I was surprised at how strongly Erik came on as well, but to be fair James didn't just say that he didn't like Paizo's approach, he claimed that the PFRPG PDF was going to start a "Race to Zero" and pretty much decimate the PDF market. That seems a fair bit more harsh than "I don't like it". If someone accused your company and their biggest project in years as the harbinger of doom to an entire market, well, I can understand some emotion from Erik.
It's also an utterly unfounded argument.
It's not wrong when there's tons of economic data outside of gaming. I mean, I learned this stuff in college 20 years ago.
Loss leader - Wikipedia, the free encyclopedia
Marketing academics have shown that retailers should think of both the direct and indirect effect of substantial price promotions when evaluating their impact on profit.[4] To make a very precise analysis one should also include effects over time. Deep price promotions may cause people to bulk-buy (stockpile), which may invalidate the long-term effect of the strategy. This is the association rule analysis.[5]
Loss Leaders, which is what Paizo is doing, can be risky to a market.