The real problem is that the app stores are generally a winner takes all top list driven market. If you price an app at 99 cents, you probably have more of a chance of appearing on the paid top list. At which time you generate a lot more revenue that you ever would have at a higher price point, despite the inefficiency of the price point.
That's true, if the only way you have to market your product is people randomly hitting the app store looking for stuff to install.
Just from the first two pages of my phone: Rdio, Downcast, Google Authenticator, PCalc, Songkick, Ratio, and the This American Life app are all things I installed because I went to the App Store to get those specific apps. (Top Shelf, Star Walk, Flashlight, Fruit Ninja, and Osmos are examples of apps I "discovered" in the app store; those are probably not great app categories to compete in).
