It's Simple Math

 
Imagine, as a thought experiment, that you are a company who sells ebooks, and has a proprietary ebook reader, both of which you want to promote.
 
You have, at this point, already established that you can sell most ebooks for a minimum of $.99, with enough margin to support giving the author of the ebook 35% of the gross ($.35 out of $.99).
 
You decide, as part of your marketing efforts, that you might get more support for your ebook reader if you appeal directly to the authors. The goal being to get more authors to create more ebooks for your ebook reader, thereby giving you even more market share. What's the fastest way to an author's heart? Yes, that's right: a bigger royalty.
 
So, you decide to double the royalty to 70%. You still need to clear at least $.64 per transaction ($.99-$.35 = $.64). So that means you have to set a minimum price for the 70% commission. It can't be $.99 any more. In other words, you need to solve this equation:
 
$.64 = 30% of X
 
Here's the solution:
 
X = $2.14
 
As any marketer will tell you, $2.14 is a silly minimum price. You need something like $1.99 or $2.99. $1.99 is too low. You can't make your margins at that price. $2.99, though, makes perfect sense. You clear your costs and you graciously offer more to the authors.
 
Voilá!
 
You set your minimum price for the 70% royalty to $2.99.
 
And, then, because some of the people on your board of directors are dicks who see an opportunity (and never liked artsy fartsy artist-author-types anyway), you pass off the cost of download to the author, eroding the 70% by a few pennies.
 
And you're done.
 
NOTE: This is just me thinking like a businessman. Some large, aggregator Web site that sells books and stuff–and a proprietary ereader–might have come to the $2.99 minimum price point for a 70% royalty by a different set of priorities. But if I was in charge, this is how it would've gone down.
 
-David