I turned to the publisher of my books that has140 eBooks titles, Victor Volkman of Loving Healing Press, to enlighten me as well as have a professional answer for the author.  He says:
My system is simple:

1.  Start with 50% off List Price as the basis for eBook price for Black-and-White books.  If this new amount is above $9.95, Amazon will punish you by cutting your royalties in half thus all our eBooks are $9.95 or less, even for printed books with a list price of $29.95.   In practice, this means our B&W eBooks are $7.95, $8.95, or $9.95.

2.  Color books (for children mostly) are priced at $5.95 because they are shorter.

3.  Magazines and Journals are $4.95.  Although this may seem "pricey," our journals are 55,000 words so it is really not a lesser product than a book, other than its product-positioning.

4.  Monographs and shorts 2,000 to 10,000 words are priced at $2.99 because that is the lowest price that Amazon allows for maximum royalty (70%).  A few very short articles are bargain-priced at $0.99

We do not participate in KDP Select program because we don't believe in monopoly marketing.
I don't believe the extra bonus money would compensate for the loss in sales on B&N Nook, Kobo, iBook, eBrary (academic), and OVERDRIVE (libraries) combined.  I've seen publishers move 20,000 free eBook copies through KDP Select but I don't have evidence that this causes paid sales later.  Also, I think there is a tendency for people to "binge" on free books that they never actually read or they have no commitment to read because they have nothing to lose. 

Amazon tracks free book "sales" separately for a ranking basis so even they know that a free book isn't as good as a paid copy.

After I read Victor's model I kicked into the psychology mode. There are some established "rules" when it comes to pricing eBooks or in fact anything that you are going to sell:

1.  Always end your price with a 5, 7, 8, or 9.  Never end in a 1 or a 0.  Our brains seem to think that $9.99 is much less than $10.00 and 99 cents is a better bargain than $1.00.

2. Purchases are often made by emotions, especially non-necessities like books/eBooks.  This is referred to impulse buying.  Impulse buying is often determined by price - buying a 99 cent eBook rather than paying $9.99 gives justification of "saving" after the purchase.

3.  Buyers have a tendency to purchase a product if they feel they are getting something for free.  There are many sites, especially those for business gurus and those selling non-fiction books or children's books, that will offer something for free if you purchase their eBooks/books.  For example, you will get white papers or "secrets" valued at $197 if it's a business themed book.  Or, in a case of a children's book, if you purchase the book/eBook you'll get 15 free templates that you can print and have your children color the pictures.   Value could be $9.95 for the templates - not a bad deal when you "just" pay $5.95 for the eBook.

Fiction writers can "bundle" their series, for e.g., sell three eBook titles for the price of two.  If each eBook is priced at $9.99 then you would sell all three for $19.98. The buyer will perceive a bargain.  For those that have only one eBook title then you could team up with another author and offer his or her eBook for free.  The other author will do the same.  More than likely each of you have a different social network therefore your eBook will be accessible to a whole new world in the sphere. Get the idea?  (Granted, these ideas will only work if you are selling the eBooks on your own site but just because you have your book in Kindle or Nook format doesn't mean you can't market the eBooks from our own site.)

Back to you and pricing...if you are really, really, serious about selling your eBook and getting paid for what it is worth, then these are the questions you have to ask yourself:

How much is this thing really worth? How much am I worth? 

You have options in this realm.  You can let peer pressure intimidate you into pricing the eBook for less than you are worth or you can be firm and decide you are going to charge a realistic value for your work.  And oh, "realistic value" needs to be based on the quality of your eBook which  means fantastic plot or information, professionally edited, and something that could easily stand by the best-of-the-best on the market.  (And, no...just because Aunt Gert "loves" the book it doesn't mean it is a quality eBook.)

By-the-way, did you know majority of people don't really buy books based on price?  They buy on value (and that means a really good book) and then rationalize the price they paid.  But...you are saying...yes, I know there are those that want everything for dirt cheap or for free.  Are those really the ones you want to spend your time and effort marketing to? They aren't going to buy your book anyway because they are looking for freebees so I say, price the eBooks at what you are worth.  Is it 99 cents or is it $9.99 per eBook?

Did I stir up some "stuff"?  How are you pricing your eBooks? I'd like to hear from you here.

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