Of course price competition is a legitimate strategy wherever it occurs. I'm simply arguing that it may not be the most effective in the short term or the long.
Econ 101 says that competition will push prices down to the level where everyone makes exactly enough to keep producing their product. Econ 101 assumes zero differentiation between products, zero brand value, etc., in these cases of perfect competition.
If you are a developer who's making something innovative and useful, whether on iOS or no, it is differentiated from the rest of the market. You are free to compete on price by selling for $1, but you may also compete on quality, solve a unique problem for your market, and sell for $5 or $10. I believe that many developers are doing exactly the latter, but still selling for $1 simply because they think it's "what is done." If they instead sold for $5 or $10, people would still buy and the developer would make more money. If enough people did this, it would remove the noxious attitude that "nothing is worth more than a couple bucks on the App Store." Consumers would get better apps, iOS developers would make a better living, and the ecosystem would improve as a whole.
There are definitely barriers to making a living selling apps, but blaming them on your fellow victims is utterly foolish.