Hmmmm... my Kindle price is $6.99, which is a big discount from the paperback. But would I sell more if it were $4.99? Would I sell five times more if it were $1.99? When there's no actual cost to put the book in someone's hands, you can really set the price anywhere you think demand will meet supply.
There's a lower limit where reducing the price doesn't really help, of course. If I'm interested enough to start reading a book, I'm probably not more likely to buy it for $.99 than I would be for $1.99, and I'm not really much less likely to but it at $4.99.
What's the price at which you would just jump in and press "buy" without really worrying about it?
On the other hand, the first chapter is free anyway. At the point where you've read the first chapter and you want to keep reading, at what price above which you start thinking hard about whether you need this book, and below which you go, what the hell, gimme the words?