I know that the price airlines charge for things is related to what people will pay, rather than the cost of provision. However, I'd love to find out how much checked baggage handling actually costs, both on an average (per flight) basis, and on a marginal (per extra bag) basis.
Having everyone carrying suitcases plus extra bags significantly delays boarding and slightly delays getting off. That means that the plane is an expensive asset just sitting on the ground. US airlines take 45 minutes to board a 737, whereas efficient operators (who don't allow excessive hand luggage, such as Ryanair) can do it in 20. Including deplaning, that means that, for each turn, Ryanair gets 30 minutes extra useage from it's planes. Over a day, that's easily an extra flight.
It would seem sensible to me to turn it on its head - allow a free checked bag, but charge for anything more than a briefcase on the plane. Have faster turns and you still get your extra revenue.