What dictates eBook pricing?

Digital books used to be really affordable and this helped the e-reader industry grow. Amazon pioneered the concept of paying $9.99 for a new ebook, from a major publisher the day it was released. This made ebooks way cheaper than paperbacks and significently more affordable than the hardcover. Amazon was losing money on every ebook sale, but they did this to grow their ebook business and spur Kindle adoption. This created a price war between Amazon, B&N, Kobo, Google and other players... More here.

An excellent article which explains the current pricing influences. It does feel strange to me that Kindle books are often similarly priced to paper books.