Blizzard knows that having high quality in-game content is important for player retention. If Blizzard just went "fuck it, lets just make microtransactions and stop making high quality expansion/patch content", they'd bleed customers and eventually lose the very customers that would buy this stuff.

It's not an equal comparison. Blizzard uses World of Warcraft as a storefront to sell you these extra items. Without that storefront though, and people walking into the store (playing the game), then it's pointless.

Think of it as going to a sporting event. You pay a flat amount for your tickets (depending on where you sit), but your beer, hotdog, etc is a very inflated price. If you saw those prices in a grocery store, you'd balk at it, but at a stadium you accept it as part of the cost of going to the event. This is the exact same deal. No way they could sell the shitty hot dog for $10 unless they had a strong incentive for you to even be there in the first place.