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If you want a serious answer, it is because digital distribution has much lower distribution costs. Moreover, in retail, middlemen take a cut every step of the process. If a game does not reach a certain volume of sales, then retail distribution might not be worth it. Think about how some movies go direct to video rather than pay for the advertising to get people to see it in the theaters. Paradox knows how many copies of the base game were sold, so it may have been a sensible decision to go digital distribution only for the expansion packs.
Paradox has started its own store that sells boxed copies, so they are catering to customer like you. However, for the time being, it only has games developed by Paradox. Majesty 2 is published by Paradox, but developed by 1C: Ino-co.
I live in China, so digital distribution is really the only way for me to get a legitimate copy of a game. Personally, I have had a very good experience with GamersGate (the sales are also great). If you object to digital downloads as a matter of principle, then you may end up missing out on a number of smaller games and expansion packs. IIRC Paradox gets over 80% of their sales through digital distribution.
Hmm... not that many games on that site yet, might check it out from time to time.
To be honest I would rather buy a boxed version as a game and pay a little more money than buy a digital distribution game cheap... Too bad digital distribution os betting so big for customers like me anyway who prefer boxed version, I'm even planing on buying magicka twice just to get it as a box
EDIT; thanks for the reply with the link to that website! I hope they will add more games to it! Paradox could use some more marketing