"And the other detail everyone seems to have forgotten is that ebook prices have a natural upper limit: the price of a paper book. Ebooks aren’t being sold in a vacuum; they are just one segment of the market. If one f0rm costs to much more people will get the their books another way."
This is less true than you might think. Certainly, the market for full list plus ebooks was limited, witness Sony Reader failing to get going or for that matter Rocket ebooks. However once the market has taken hold, there is reason to think that small differences in price in either direction between paper and ebooks become less important. You can already find top sellers on kindle where people are paying more for the ebook than for the brand new discounted trade paper simultaneously available. Once a format commitment is made, it may be easier to substitute titles than editions. Pricing for the same edition is where the competitive pressure occurs. That is, when I decide to buy a trash series novel, I might decide who to buy an ebook from based on price, but I won't decide to buy it in paper no matter the price.
This gets weird with backlist, where a like new hardcover might be available for a penny plus shipping used but cost ten dollars on the kindle.
ETA: The post in particular and the blog in general seems to be really excellent.