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