I know everyone goes around in circles about this. Is $0.99 too cheap? Is $2.99? How expensive is too expensive? The way I see it, ebook pricing for the indie writer can be looked at two different ways--marketing and length.
It's a good idea to have a cheap or free story available, even several. I have three free stories listed on my site at all times. One m/f, one m/m, and one f/f. Two of the three I consider too short to comfortably sell for a dollar, and one was a good example of pure m/m sex. It gives potential readers a chance to decide if they like my writing style without losing any money in the deal.
I've read a lot of bad free books, and if I'd paid for them I probably would have stopped reading indie books altogether. It's hard for a reader to know if they're getting good quality, especially since even professional publishing companies publish drivel like Twilight and 50 Shades. When it's free there is no risk.
As a struggling artist whose skills and training outside of writing and literature are service oriented, I don't like to spend money on something that isn't worth it. Most of my money goes towards things like food and rent. I rarely buy books new, implement my public library, and download ebooks when they are offered for free. When I like them, I buy more. Poor people buy books. They need the distraction. Give them a reason to buy yours.
If you are writing a series I think it's a great idea to have a free short story that is either stand alone or a prequel, and then offer the first book for 99 cents. If your plot is good and it is well-written you can pretty much assure more book sales at a higher price from the following installments.
A few months ago I bought three novelettes from a fairly popular indie writer. The first story was free and it pulled me in. The second one was $1.49 and it was equally awesome. The third one was $2.99 and I almost didn't buy it. That's a lot of money for a novelette. I read a free short story by another writer and was excited to read more of her work, but she was selling all of her shorts for $2.99 and I decided not to buy.
Whenever I see a short story marked at $2.99 I cringe, and a lot of the reviewers do too. "I didn't realize how short it was" is a common complaint and cause for low ratings. Why spend so much for 5,000 words when so many people are selling full-length novels at that price?
So what makes a short story and what makes a novel? It is not definitive. Every writer will give you a different number. These are the numbers I'm comfortable with.
Flash Fiction: < 1,000 words
Short: 1k to 8k words
Novelette: 8k to 17k words
Novella: 17k to 50k words
Novel: 50k words and up
I think it's near criminal to charge for stand-alone flash fiction. Who wants to spend a dollar for six minutes of their time? I really have a hard time paying $2.99 for less than novella length. I figure novelettes should fall into the $1.50 to $2.50 range.
"Drain me Dry" is on the line between a short and a novelette, so I priced it at 99 cents. It's sequel, "Addicted to the Bite" (to be released mid-month) is almost 13k. I plan on pricing it at $1.50. I hope that the more I write about my main characters, Jamie-boy and Damian, the longer the pieces will get and the more I can charge, but I plan on always pricing in accordance to length. 50k is worth $2.99. 75k might be worth $3.50 or $4.00.
In the end, it comes down to readers. If I wanted to make money writing I would have given up long ago. I hope to make money writing, but what I really want is readers. I used to write fanfic just for the praise. In the past I've written several online serials on a donations-if-you-feel-like-it platform. I want my stories to be read by as many people as possible, so I plan to always keep my prices reasonable, especially for poor people like myself.