Joel Spolsky describes how pricing sends a signal as to whether a product is good. People don't buy cheaply priced products because they perceive them to be "cheap" and therefore not very good.
For products where physical manufacturing costs are low, such as music, you should charge each customer as much as they are prepared to pay. If you sell for a low price to someone who would not have bought your product at all at a high price, you still make a profit.
The book industry manages to do this without making books appear cheap by having two versions, a hardback (expensive) version and a paperback (cheap) version released later. Keen readers of an author will buy the hardback as soon as it comes out, more casual readers will wait for the paperback. Music could do the same thing. It's a bit more difficult with online downloads, but maybe people who buy early at a premium price could have access to websites with exclusive pictures and interviews with the band and later purchasers (at a cheap price) would only get the music itself.
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