Perhaps another aspect of the baggage fees is to lock-in higher paying / frequent flying passengers. Look at it from this perspective. I am an AA elite, and I am not an elite on another airlines. I think all the incumbents now charge baggage fees (AA, United, Delta, Continental). In this case, if I am an elite who checks luggage, AA is now $30-$100 cheaper than flying another airline. Of course, this is moot for people who are elite on more than one airline, but that is very small population.

I am making an assumption that is not always true, which is business travelers / frequent flyers will stick the the large airlines. WN and others have certainly made inroads to this population, but it is also true that most of my colleagues stick to the biggies because the more robust schedule and ability to upgrade.