What makes that extra $3 more important then the initial $2? Its still less then how much you spend on a coffee or a lunch during a single morning/afternoon.
//edit: Real question here. Especially since I'm (and I'm assuming others are) looking at doing iPhone dev at some point in the future.
The difference is that on a $5 coffee or lunch I'm getting something that I know I will enjoy. It will also last for a reasonable amount of time while subsiding hungry/thirst/tiredness.
With a $5 app I might enjoy it for maybe a couple of minutes if it's not crap. I've seriously downloaded free apps, played them for 30 seconds, thought "this is not fun", and exited the app. I'm personally scared of having that same experience with a $5 app. With a $0.99 app I could try out 5 different apps instead of just one, while putting the same amount of money at stake.
If I spend $5 I want to be fully aware of what I'm getting for it. I hope that the author's new Lite version helps achieve this.
There isn't much of a reason. It's a purely psychological barrier, but it exists, and you have to account for it. Prices are getting lower and lower for mobile apps, and that's just what the market accepts now.
I'm guessing part of that psychology is set by prices of songs and TV shows in iTunes. Songs $0.99, TV shows were $1.99 (think it's more now for HD?). So if you are in that range, it's like impulse buy of a song or TV show. Out of that range, people will take some more time to think about it, which means they probably won't buy.
As to rationality, I think the impulse buy works because people know if they buy 5 or 10 things, some will turn out to give them a lot of enjoyment but others not so much. Buying $1.99 apps instead of $3.99 apps means you have twice as many "tickets" to spend in the hopes of finding a few things that are actually fun.
(If you are not selling fun, but actually eliminating some real pain people are experiencing, you can probably price more aggressively.)
When I buy coffee when I'm out and about, it's because (1) I'm tired and I want to sit down and be perked up a little, (2) I'm thirsty and (3) I don't have the option to go home and have much better coffee in comfort.
In other words, coffee from somewhere like Starbucks is a pricey respite from pain, albeit only a little less painful.
For applications at the 5 USD price point, I'm simply not feeling the pain.
Thanks for nitpicking at the example I gave instead of answering my question. Very helpful :)
Though, I feel like i need to defend my coffee drinking habits; Since when is there something special about a large iced latte at Starbucks or Dunkin' Donuts + tax when its hot out during the summer?
I might be mistaken, but when I originally posted your edit wasnt there yet to clarify.
To answer:
$3 over $2 is a big leap on the internet. Clearly there is a huge barrier between free and paid. 99c or $1.99 have been somewhat standardized by the itunes store, but anything above that I think still has huge pushback from traditional web consumers unless they are receiving A - a service, or B - something physical in the mail. I'm not claiming it is rational, but neither is buying $5 in coffee, which I also dont do (per my post).
//edit: Real question here. Especially since I'm (and I'm assuming others are) looking at doing iPhone dev at some point in the future.