Digging through some old notes, I found this link:
According to Anita Hamilton in Time, Apple’s upcoming App Store will be “anything but a bargain.”
She wrote that in July 2008, and since then the App Store has obviously turned out to be an amazing bargain. Seems like almost all apps are $0.99 or free, which is kind of a shame (since I’d like to sell apps). I’m still hoping Apple figures out a way that premium games can sell for a premium price. Right now there’s no differentiation in the App Store. I do see a few of the top 100 paid apps at $4.99 or higher, but most of those are associated with an existing brand (Sims 3, Tiger Woods, Tetris). Games that sell for $19.99 on Windows or Mac are just $0.99 on iPhone (Sally’s Salon).
As others have written, it’s because the easiest way to market on the App Store is to price yourself less than others. I’m not a marketer, but it seems like this is exactly the opposite of the way Apple operates. They sell better than average products for a price that reflects their value.