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Flare upgrades competed with gear upgrades, and there was a risk that player would overlook flares to improve tools & weapons, which would affect not only their experience, but also the experience of their teammates - your light is everyone's light.
In an attempt to make the choice easier the flare upgrades were priced very low, which made them feel like a mandatory stepping stone rather than an interesting choice.
Some people still missed that flares were upgradable, and unwittingly gimped their own gameplay.
From a game design standpoint, flare upgrades didn't fit - they were something that only new players needed, yet only new players didn't have the spare resources to buy; veteran players could play without flare upgrades at all due to game knowledge, yet the veterans were the ones who had a lot of money & minerals, and tossing a few thousand on flare upgrades was trivial for them.