Jen, the math doesn't seem to support your statement. With a 256-player field, that second group of 128 players contributes between $51,200 ($400 x 128) and $64,000 ($500 x 128) to the prize fund, and they receive zero in prizes.
With a field of 128, Barry would probably pay 32 or 48 places instead of the 96 places with a field of 256. Last year, the 49th through 96th places received a total of $28,000 in prize money and the 33rd through 96th places received a total of $44,000 in prize money. So, either way, more would be lost to the prize fund by not getting the entry fees from the extra 128 players than would be gained by not paying prizes to 33-96 or 49-96. So it would be a net loss in prize money for the top 32 or 48.
Edit: However, with 128 instead of 256, the tournament could be shortened. That would save money for a lot of people in rooms, food, etc.