The problem is that an "app" has now become a generic commodity, with an expected value that has zero correlation with the amount of work that went into it or the size of the potential audience.
Paying for an app based on effort going into making it is nonsense. An app should be paid for based on the value it provides. If it could have provided that same value with less effort, it probably should have.
Now, if you want to complain that it's hard to charge based on the value the app will provide, I'd believe you! It's still very, very hard to provide users with information which will let them evaluate your product and determine that it is, in fact, a quality product worth paying lots of money for.
Fun fact -- I have never bought a single app on Amazon's Android App Store even though I fire it up every day to see what I can get for free. Why buy an app for $1-10 dollars (even if I may get that amount of enjoyment/practical use out of it) when it MIGHT BE FREE tomorrow?
The same thing holds to a lesser extent on those giant Steam sales. I never buy any games on Steam full price even if I want to play them badly because I know if I wait a few months I'll be able to get them for pennies on the dollar in some crazy sale or other.
As a consumer this is great for me. As a developer, not so much.
The price of an app (or anything, really) is based on both. It's not dictated by the supply curve or the demand curve; it's dictated by the intersection of the curves. This argument was settled centuries ago.
I am in fact making a living off of making indie games, and I admit the market is now in fact better than it was ever before (in sheer size).
However, we keep seeing people gushing all over the various bundles and steam sales & with little to no discussion of the possible long term negatives.
EDIT: although you are right that there is a lot of competition making games, there isn't that much competent competition.
The only thing I'm talking about is that amidst all the praise we should think about the possibly negative long-term effects of the race to the bottom[1].
I'm not presenting any grand scheme to solve it, only pointing out that there is a dynamic at hand that I think is not all good.
[1] see the situation at the app store for what a possible future might look like.
Microecon 101: it teaches superpowers.