I'm still dealing with moving to a new computer, but this (via Edward Robertson) is another Forbes interview with Mark Coker that specifically focuses on indie book pricing. (The first two interviews are here and here.)
Of course, it's important to remember that Coker has access only to Smashwords' data, which is not necessarily applicable to anyone else. But Amazon appears to be pushing authors to raise prices.
And I think that's a good thing. I don't think self-published authors should raise e-book prices to $14 a copy or anything, but I think some writers get very hung up on differences in prices that really don't mean much to readers. Trang sells more now than it did when it was 99 cents, Trust didn't sell more at $3 than it does at $5, and people will even pay for a book when I'm trying to give it to them for free.
I once read a post by Dean Wesley Smith where he pegged $5-and-under as "the impulse buy range." And I thought, Oh, there he goes again, Smith always overstates things, how could he possibly know what "the impulse buy range" is?
Of course, a few days later I was in a store and I saw something cute that I didn't really need, and I looked at the price and thought, "Hot damn! That's not even $5!" and I dashed over to the cashier and bought it. Then I realized what I had just done....
So my feeling is that once you get below a certain number--$5, $10--the actual price doesn't matter so much. You might as well charge $3 as charge $1, or $5 as $3. It's kind of all the same to readers.
And there's good reason not to price extremely low. Obviously, with Amazon you make significantly more money above $3. The problem with making 35 cents a copy (aside from the fact that you may be training yourself to devalue your work) is that you're making so little that it's extremely hard to turn a profit on marketing costs.
Another thing to think about is promotions. If your normal price is super-low, you won't be able to afford to run promotions--but that's not all. Retailers routinely inflate the "normal" price of something so that they can post an attractive markdown. (Anchoring!) If you really feel like it's unfair to charge $5 for your book, price it at $5 and constantly offer coupons or put it on sale. People will be even happier to buy it because they're getting a deal.
Plus, you may surprise yourself and sell more at the higher price--it happens. Remember, the market decides what price is "fair." You really have surprisingly little control over it (You'd really rather pay for it? I've got a free coupon right here!), so go with the flow.