At some stage most developers offering paid apps ask themselves if they might make more money by lowering (or sometimes increasing) the price of their app. Distimo has done some interesting analysis on the impact of price drops on the iPad and iPhone app stores.
The conclusion is that price drops positively affect revenue…
My own not-so-scientific experience of this, over the last decade and a half, across several platforms, is that lowering the price from a ‘high end’ price to an ‘below average’ price has always increased revenue. However, you have to factor in the cost of all those extra users. It’s less about server side costs and more about technical support. Supporting very large numbers of users can be tricky and time consuming.