Pay what it's worth, not what you can get away with.This is an unplanned follow-up (now part 5 - here's part one, two, three, and four), based on a comment thread started here by Matt Selznick.
He pointed out that (aside from my cut-and-paste error with his URL), he's still not making a living wage with his creative work. The 1000 True Fans model is a great idea, but hard as hell to do. (If you're familiar with Mr. Selznick at all, you'll know that he's not whining, and that he is connecting with fans however possible.) One solution he suggests - rather than the economy-wide deflation I predict - would be for creators to charge more for their work.
This might seem counter-intuitive, especially given results like lifehacker's poll about e-book prices, but I think he's onto something.
There are two things I've heard Mike Stackpole say that have changed the way I think about books - and what I'm willing to pay for them.
The first is that all readers are patrons of the arts. This isn't hyperbole; it's recognizing that "arts" aren't limited to expensive black-tie operas and bazillion-dollar paintings by dead artists. Hell, it's even what copyfighters recognize when they talk about culture, and how excessive copyright impoverishes our common culture.
The second is that we need to look at entertainment value when we buy books. This tickles my economic heart, because in a free market, price does not reflect production costs.
You heard me right.
Price is a stand-in for value. Economists (and the public) often forget that price and value are two very different things. For example, I'll pay a little bit more to shop at a local comics store because I value local businesses. So when we talk about how much our entertainment should cost, the production cost is irrelevant.
It's all about how much entertainment value you get from it.
We don't pay more or less for movies based on production cost (take a look at just this one, very limited example of 15 low-budget movies that made a lot of money). Why shouldn't we extend that same metric to all other forms of entertainment?
For example, millions of people plunked down $10 (or more) for less than 4 hours of entertainment for Avatar - but you could get over twice as many hours of entertainment from Matt's podcast of Brave Men Run (which I highly recommend). Isn't it fair to pay per hour of entertainment, whether it's an ebook, a dead tree book, a movie, a television show, podcast, or indie video game? 
It's not the way we're used to thinking about books or video games. But I think that just maybe it's the way we should be.
 Yes, quality and medium are a factor - but I can definitely point to books that entertained and enthralled me more than some movies, so it's not a strong rule that way. Factoring in quality doesn't invalidate the equation, it simply makes it a tish more complicated - (Hours of Entertainment * Quality of Work * $). The principle that you're paying for entertainment value holds.