Read this well thought out price analysis from Tim O'Reilly. A short excerpt follows...
"It's true that new price points can sometimes attract new readers -- that's what happened with the rise of the paperback. But note that as paperbacks became the dominant format, outselling hardbacks, prices rose substantially for both paperbacks AND hardbacks. They didn't keep falling. So if prices fall to $5 or less, as predicted, you can equally bet that they will rise if and when the electronic format becomes dominant.
What's more, I think that the idea that there's sufficient unmet demand to justify radical price cuts is totally wrongheaded. Unlike music, which is quickly consumed (a song takes 3 to 4 minutes to listen to, and price elasticity does have an impact on whether you try a new song or listen to an old one again), many types of books require a substantial time commitment, and having more books available more cheaply doesn't mean any more books read. Regular readers already often have huge piles of unread books, as we end up buying more than we have time for. Time, not price, is the limiting factor."