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Everything you said is pretty much spot on, but I think the overarching point that isn't really spelled out, is that people do actually spend money on apps[1]. There are important pricing considerations in that going from .99 to 1.99 you don't normally lose >50% of buyers. Once you've crossed the barrier from free to paid, another dollar isn't a big deal. Also, IAP and other methods of giving people trials helps. Overall the point is though that people do in fact spend money on apps.

[1] My longer response to this article - https://news.ycombinator.com/item?id=6471131

Also, it's not "worth less than a cup of coffee".

My coffee costs under a dollar, because I buy the ingredients from a supermarket. A cup of coffee in a mall costs a lot more, because when you buy it you are comparing it to other cups of coffee in a mall.

People are idiot savants when it comes to side-by-side comparisons. They can only compare stuff in context. It's called Anchoring. And it's irrational.

The supermarket near me has cheap instant coffee for $3 a tin, reasonably coffee for $5 a pack, and expensive coffee for $10. People buy the one in the middle (because it's "good" value). It's something like 5 cents a cup, vs 20 cents a cup ... but they still fret about the cost of good coffee.

Then they'll walk out of the supermarket, and consider whether a $3, $3.50 or a $5 takeaway cup is better value.

People generally make decisions on whether a purchase is relatively good value, compared to the stuff beside it. Once you get people purchasing stuff in a place that's not in exactly the same context of a $1 app, or a Free app, they'll be less biased towards thinking that $1 is a ripoff.

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