If you recruit most of your customers from a population which steals most of their software, then aggressively socialize them to think the software which isn't convenient to steal yet is fairly priced at $1 and expensive at $3, and then ask their opinions about your business model, what were you expecting their opinions to sound like?
This is the culture of the iPhone, 99 cents rules the day. The fact that the iPhone arrived at this is far more Apple's fault than the customer's.
In the current iPhone world, 2.99 + a lot of 99 cent charges to essentially just use the app is outrageously expensive. Especially when you consider the app is a rather simple "toy." Just off the top of my head, Train Conductor is a full fledged (and beautiful) game, and it's entirely playable with no additional fees at 1.99. In comparison, Flower Garden really does come out looking ridiculously overpriced. My question is if he had priced his app more in line with what iPhone customers expect, would he have made more money? Or maybe he really did make more money by more "realistically" pricing his app to what he feels it is worth.
The bargain basement iPhone app pricing is a huge problem, for sure, but it's not going away anytime soon. Is it better to just go along with it, or can you make more money by standing firm?
The three top grossing apps in the UK are priced at £49.99, £59.99 and £26.99, and the rest of the top 25 average around £2-3 each. Looks like there is some scope for more expensive applications.
But the most expensive apps, like tomtom, are iPhone versions of expensive products, so even though the iPhone app version is high for an app, it's less than the alternative. That doesn't really work for iPhone only apps.
It's the developer's responsibility to play around with pricing, etc. to see what maximizes long-term revenue.
(Also, AFAIK, you can't charge less than $0.99 for an in-app purchase, and each IAP has to be identified uniquely.)