What's been said so far about food being a need vs a game being a want is good. I'll add that there's additional psychological forces in play for in-person purchases that aren't present in online marketplaces like Steam. For example, if you're hungry and decide to go into a takeout place and get served quickly you don't have much chance to choose what to buy. Since a lot of people don't feel comfortable taking a long time to choose what to buy when the person serving them is waiting, there's going to be a higher percentage of impulse buys for stores set up like that. This is, of course, taken advantage of by the bigger takeout places like McDonald's, KFC, etc. I haven't been into one for a few years, but I'm sure they still emphasise certain menu items over others on the menu. I'll get back to this point.
A lot of products made by big companies (Adobe, Apple, etc.) aren't actually created to sell lots. Instead, they're a marketing tactic to contextualise the price of the thing they
actually want to sell. (Also, note that businesses can do this entirely by accident; in those cases the market naturally selects for them even though they have no idea what they're doing.) Large companies (and it's not restricted to them but they're a good example) create price brackets for their goods. Let's say we're selling a laptop and we want to sell it for $600:
- $600 - Laptop with charger, carry case, Windows & Microsoft Office pre-installed, and 3 year warranty.
This isn't a good product from a marketing perspective (morally [for lack of a better] it is, but marketing doesn't have anything to do with morals) to begin with, but let's make things worse and say that your research shows that people want their laptops for $500. Here's where price brackets come in. If you want more out of your market than they're currently willing to pay (obviously it can't exceed what they're
able to pay) you need to manipulate their perception of prices.
- $500 - Laptop with Windows (needs to be installed by user).
$600 - Laptop with charger, carry case, Windows & Microsoft Office pre-installed, and 3 year warranty.
See what I've done here? It's a real dick move. Technically the laptop is available for $500 but it's a pain in the butt to have to install the OS yourself, plus I left all the peripherals in the price bracket I actually want people to buy in. Also note that the difference between the two purchases is nowhere near $100. A charger, carry case, MS Office, and a 3 year warranty would be worth way more than that. In other words most people can see that if they buy the $600 laptop they're saving a lot. Of course, they're not really saving because I'm manipulating them by juxtaposing these two prices. Paying $500 is actually a massive mark-
up since it doesn't subtract all the savings I make on not having to give them the peripherals. But we can do better than this:
- $499 - Laptop with Windows (needs to be installed by user).
$599 - Laptop with charger, carry case, Windows & Microsoft Office pre-installed, and 3 year warranty.
$1100 - "Gamer"* Laptop with charger, hard carry case, Windows & Microsoft Office pre-installed, wireless gamepad, and 5 year warranty.
*Quick aside: anything branded "gamer" is ripping you off. Gamer is a marketing identity that was created and sold back to you.
Let's walk through what we've got this time. First we've got our $500 price point to attract people in with "laptops for $499!" (technically not a lie)—remember this is how much people were initially willing to pay. It's a little annoying to have to install Windows and WTF am I going to charge it with? Next we've got the $600 price point and this is what we originally wanted to sell. It's got all the bells and whistles and we also made sure beforehand to price it so that we're making a decent margin. Note that I've docked $1 from each to make them $499 and $599 respectively. If you don't think this works you're dead wrong—Your mind places greater emphasis on the length of the number and the first number's value; the following digits get less attention. So now our $600 price point is being perceived as $500ish which is what the customer was originally willing to pay. This brings us to our last price point, the absurd $1100 "gamer" laptop. It serves two functions: the first is to make the other two prices seem cheaper, and the second is to make the difference of $100 between them look even smaller by introducing a comparatively large $500 gap between the mid and top price brackets. I also deliberately made it go into four digits to make it seem higher (again, length affects perceived cost; the difference between $999 and $1000 seems bigger than it is). And despite being the one who devised these prices I
still look at $599 and $1100 and briefly see a difference of $600.
Obviously we'd make better margins on the $500 or $1100 price points since they're over-priced for what they offer but the problem is we can't actually sell many of them. We could put them in the middle of a new price bracket system but remember that the customer has a set of things they want which we only have limited capability to change. They at least want the charger and Windows installed so we're not going to get them to pay for the $500 product. And the $1100 one is too much—we're talking a $600 difference from what they originally wanted to pay vs. a $100 difference. Obviously the latter is easier to convince someone to pay.
Anyway, this all falls under the category of psychological pricing. It's manipulative as fuck and you should feel insulted any time you see it. Never, ever listen to the nonsense businesses say about trying to make things affordable or whatever. A company's goal (and this is mandated by
law in countries like Australia and the US) is to make money. This leads to all sorts of bad shit regardless of how nice the people running the company are, and gets progressively worse the "better" they get at marketing. And... accept the fact that if you ever go into business you'd be stupid not to use it in most cases. There are exceptions, such as when having something with a high price is seen as a status symbol (Veblen goods like luxury cars, expensive watches, etc), or you're operating in a small, closed community (no need for this if you're the sole baker supplying a small town).
This is the point I was making at the end of the first paragraph. Businesses emphasise certain products over others, in part for the reasons above. SO. Why do people pay more for some things and not others? There's a lot of factors. If something is a need like food that means that at least some food suppliers will always make money. Contrast this with games. Every single game company and store could go out of business and humanity would survive. Still... I don't agree that the reason people pay more for food sometimes is because it's a need. You can still get cheaper equivalent food after all. I think marketing makes a huge difference. There may have been psychological pricing at play, and not necessarily at the place your friend bought food. Even if your friend is being 100% rational when buying food, they might not when buying on Steam. Everything I described in the pricing bracket example above plays out on a macro scale between competing business too.
Also, digital goods can be replicated indefinitely and aren't seasonal which means the prices can be dropped much, much lower provided you can capture a big enough audience. Big companies with correspondingly big audiences do this and it can work, but you can't compete on price with them if you've got a smaller audience. If big name title is selling for $5 after a few years and your tiny game that's not as polished or long is also selling for $5... what are people going to buy with limited money? Again it comes back to marketing: you simply can't compete on price. If you can't compete on one axis, switch to another like quality, or representation, etc. and emphasise that. When someone won't buy an "indie game" (itself a marketing term, as evidenced by its nebulous definiton—it has a positive connotation, but vague denotation) due to price... that's marketing gone wrong. You can't compete on price. It's your job as the developer to either change the customer's value system (convince them to value quality, integrity, etc over money) or to appeal to customers that already value what you provide (i.e., you need to find them and make it easy for them to accidentally find you.)
Look, I'll be honest with you. I'm absolutely sick of typing this and I really want to do something else now. Bye!
But, I was wondering why people are willing to pay so much for so little, but then bulk at the idea of spending the same amount on something which they will have forever and most likely bring them a good amount of fun?
That may be worth it to some players; but that is like, better than a 1/3 of what I make in a good month and I've got college bills. So I'll not be able to play this for a few years.... However, in the meantime, The Royal Trap is at the top of my list with Pirate Mermaid close behind. 
