You answered your own question. The pax has a choice to downgrade in your first scenario but is deprived of that choice in the second. In a perfect world, airlines would not oversell because they would always know how many seats they have and every pax who has a reservation would show up. Unfortunately, it doesn't work that way in reality so the airlines have a choice. They can either sell the exact number of seats they have and lose revenue from seats flying empty or they can do what they do and oversell and deal with the consequences. They know the consequences of downgrading someone and accept the responsibility for when that happens. But in the end, if they can raise yields by more than they pay out then it's worth it to them. In other words, if I can gain $10,000 by overbooking instead of selling to availability, but have to pay $2000 in compensation for bumps, the airline is $8000 ahead in the game. That $2000 goes to the pax that are/were in the OPs situation.

Here's maybe another way to look at it. One thing to consider is that a flight is an expiring product. Once that flight is over, there is never another like it. The fact that you can purchase the same product for the next day doesn't change that fact. The product, by virtue of it being the next day, is not the same product. I don't think anyone would disagree that if you bought something and it wasn't given to you that you would be owed your money back. Now choose a unique and expiring product like concert tickets for Bette Midler. My ticket is the same as an airline reservation. It has who is performing (the airline), where I am sitting (the class), and the time and date of the performance. If the concert vendor at the last moment changes the singer from Bette Midler to Bette Midler's cousin, Linda Midler, then obviously the ticket holder is receiving a different product than what is required to be provided according to the terms of the ticket. When calculating compensation, it is calculated using the fair market value and not what someone specifically paid for their ticket. If the fair market value of seeing Bette Midler is $100, and the fair market value of seeing Linda Midler is $10, the ticket holder is due $90 irrespective of the fact that the ticketholder drove a hard bargain and bought the ticket for $50.

So, in this case, the OP bought a ticket to see Bette (J class) but only saw Linda (W class) then the compensation due is the fair market value of those tickets which should be calculated according to full fare prices.

All of this changes if the OP has a ticket to see "a female singer" (showing up with an open ticket but no reservation) or if the OP came to see Linda (W class), but she was substituted for Bette (J class), and the OP didn't leave (op-up). It also changes if the OP accepts seeing Linda and receiving an additional ticket for Celine Dion in exchange for seeing Bette (voluntary downgrade).

I am sorry if that's confusing but I work better with analogies. But the general idea is that, when you make a reservation, you have a contractual right to a product according to the terms of the reservation (specifically date, class, and carrier) and a change in that product means that the airline owes some compensation. Before the reservation is made, you have no contractual rights and therefore the airline owes you nothing. This is relatively unchanged by what people mistakenly refer to as the "contract of carriage". What they are referring to are generally (and correctly) referred to as the conditions of carriage and give both the pax and the airline certain rights which do not include the ability to downgrade without compensation. The downgrade provision is there to protect the airlines when they do practice overbooking and something goes wrong. If you have 10 seats and 11 pax, all with tickets, what happens? The airline, through the conditions of carriage, have the right to downgrade one of them. You can't fly with two people in the same seat (though it feels like it when in coach) and not having the condition would force airlines to abandon overbooking. Although it stinks if you are one of those getting turked, in the end it lowers costs for all ticket holders since it means that it's more likely that the airplanes are flying full.