When you release a game, there are a total of 12 possibilities.
1. Your game is bad, and the demo is bad.
You have just lost sales. The demo is bad, and reflects how bad the game is. You won't buy it.
2. The game is bad, the demo is okay.
If the game doesn't offer anything that sticks out, and its just "meh", you're not going to rush out and spend $60 on it. More than likely, you'll wait for the reviews - see that its crap, and just skip it.
3. The game is bad, the demo is great.
This is nearly impossible to pull off, but, assuming you do, you get an increase in sales.
4. The game is okay, the demo is bad.
Lost sales. No one wants a shitty game.
5. The game is okay, the demo is okay.
Once again - $60. Most statistics show that this will actually not increase sales - but I'll just put that to the side for a moment. In most cases, gamers won't spend $60 on something unless they have faith that it's great. If its just okay, most of the time, they'll wait for reviews, or get their fix from the demo.
6. The game is okay, the demo is great.
Not as impossible, but really hard to do. Once you play the game, you have a feel for what its like. Its hard to simulate greatness without actually being there. Assuming you could, I would imagine this would probably generate additional revenue, assuming the consumer flat out ignores reviews and is just intent on getting this game.
7. The game is great, the demo is bad.
You just lost sales. You provided the worst the game had to offer - as well as wasted resources.
8. The game is great, the demo is okay.
You'll probably see a sales decrease. If its just okay, its not going to convince people to blow their hard earned money. To push those AAA games, you something to pop out for the experience. If you can't capture that pop, its gonna be something you wait for on a sale.
9. The demo is great, the game is great.
You successfully captured the pop. You may increase sales, but it's still risky. You have to hope that the awe inspiring demo gets more people enthralled then people that say "already, that was fun. I've had my fix." It's a risky positive.
10. The game is bad, there is no demo.
Now, this one is interesting, as you can branch it off into so many different subsections - but I wanted to keep this a semi reasonable length. You can easily create hype for bad games. If you staple a trailer onto the experience, you can direct what the viewer will think of the experience. I'll cite Dead Island. That trailer was amazing. I can guarantee you that game would not have sold enough units to warrant a sequel if they had allowed people to play it first. Demos pop the hype bubble. A bad game can be dressed up easily with CGI. If it doesn't have a huge marketing push, it will more than likely have people checking reviews. Word of mouth will eventually sink the game, no matter how awesome its made to look.
11. The game is okay, there is no demo.
These will probably sell modestly. People won't rush out to buy it on day one, but if its an interesting concept, there will be a crowd of people who will buy it to try it out. If peoples curiosity peaks, they'll cave and buy it. And these games tend not to be too offensive, so the user is generally happy. If it doesn't have a huge marketing push, people will probably check out the reviews, and decide from them.
12. The game is great, there is no demo.
This is where you can let word of mouth do its work. Do you think Skyrim would have blown people away if it hadn't been for all those memes and talk about it? Its a cultural icon. MineCraft was a game that was sold completely by word of mouth. Any of the popular series - Halo, CoD, Half Life, Pokemon. They sell by the droves because people talk about them. And, aside from MineCraft, none of them give you a demo - if you want to have your fix, you have to pay. And even with that, I know people who played the incredibly poor done demo and got their fix of that game.
It sounds really great to consumers - yeah, lets have a demo. Thats mainly because its free for us - and it lets us pop our hype bubble. On the industry side of thing, they WANT us to have a hype bubble. Popping that bubble takes time and money from them, and results in a decent chunk of customers saying "thank you, but I'm good" after trying it.
Of the 12 situations posted, 9 have to do with demos. Only 3 are positive - and one of them is nearly impossible to pull off. The other 6 are either negative or no net gain.
The other 3 are entirely positive though. You can have a good, bad, or meh game - consumers won't know. If you can make the game look interesting though, you can peak tons of peoples curiosities. And thats what can really sell games. Who would have really bought a game like Dead Island or Halo 3: ODST if they have actually gotten to play it first? Probably not as many people who actually purchased it.