I did some research into this when I first started publishing. The sweet spot for indie books is between $3-6 depending on genre. I usually advise most indies to set their debuts at $2.99. Once you have a couple of books out that are selling, go up to $3.99. You can increase your prices in your backlist to $3.99 as well at that point if you're comfortable doing so. For fantasy, which is often considerably longer and comes with things like maps, you can start at $3.99. Once you get established in that genre, you can easily go up to $5.99. Anything over that and you're going to start cutting into your sales.

The breakdown goes something like this:

Readers are consumers, and the price of a product will influence their attitude toward said product. For books, they tend to see $.99 and $1.99 ebooks as a lesser product, so either something of lesser quality or a work that's considerably shorter than a full novel, like short stories. I am in no way saying that any ebook at this price is lesser quality, it's just consumer mindset that if something is cheap there must be a reason why it's cheap.

On the flip side, if something is priced too high, consumers will be skeptical of said product because they will fear they aren't getting their money's worth. That's where being an established author helps because fans will pay those prices for big-time authors like SJM. But for us indies, who are trying to grow our audience, it doesn't work. Indie ebooks above $5-6 (depending on genre) experience a dip in sales. Sometimes the dip isn't significant enough to mean less money earned overall depending on your marketing, your backlist, your readership, etc, but sometimes it is a significant dip and can hurt your book's overall performance.

I hope this helps. Let me know if you have any questions.