Comment by jandrewrogers

Currently, unpopular sizes are over-produced because they are subsidized by popular sizes. If the unpopular sizes have to be paid for, the logistics and production processes would push producers to under-produce popular sizes.

A key insight is that what constitutes an "unpopular size" is a very local phenomenon. Every point of retail sells a different, semi-predictable distribution of sizes. It is much cheaper to ship sizes no one will buy than to manage the logistics of exactly matching local demand for a specific distribution of sizes.

I asked the same question to someone who works in this business and got an eye-opening detailed explanation that made it obvious in hindsight why things the work the way the do. The difference in product cost and logistics infrastructure was not small.