It's only a race to the bottom if you make it one
Intelligent advice from Marco Arment on why you don’t have to price your iPhone app at 99 cents to succeed:
You can easily sell an app for more than $3 if you simply recognize that you probably won’t be on the Top 25 list. In reality, this might already be decided for you: if your app isn’t likely to appeal to an extremely wide audience, you probably won’t make the Top 25 at any price. And even if you do target a wide audience, there’s a lot of competition for those spots — statistically, you probably won’t get one.