What you outline is a case where most would say the player shouldn't be playing up, including me.
Why does the USTA allow it? Four primary reasons I think:
- Give player an opportunity to challenge themselves to try to improve - This is fine if the player is ready for the challenge, it does not when they aren't as it creates lopsided matches for the at-level player which aren't terribly fulfilling.
- Let a player "fix" the USTA missing on their year-end level - Say someone should have been bumped up but the algorithm missed, but the player "knows" it and chooses to play up and not feast on the players at their level.
- It lets a team fill out a roster to be viable which allows the higher level players to have a team and play.
- Increase league revenue - If they let someone play up, that is an additional league fee.
It could be the fourth is the real reason and the first three are just rationalizations, and the problem with the first two is it puts the decision in the hands of the player with limited information and is done on the honor system where they have to opt-out of playing up if they aren't good enough to compete, or opt-in to doing so if they somehow know they are too good for their level. The third is probably valid and actually comes into play when a team goes to Nationals and has to move up and wants to stay together and has some players that weren't bumped up.
Could the USTA only allow players to play up if they were in the top half or third of their level? Sure, but that would be more work than they have to do today, they'd have to either publish a list or have the system check when registering and not allow it. I think they should do it, but if it would decrease league revenues, what is the incentive for them to do it?
One could argue league revenues are decreasing due to players abandoning league play because playing up is allowed, but they must think this is a smaller number than they are gaining by letting folks play up.