Go for the higher-paying customers.

The risk in a race-to-the bottom is that you might actually win. Worse, you might come in 2nd.

Early on you want the higher-paying customers because you want their feedback. You want to listen to their feature requests and implement them, so that you can iterate your product and get more $4.99 customers in the next release.

You also need to consider the opportunity cost of maintaining a larger customer base. Assuming you are breaking even on revenue and all other things considered equal then you need to answer 5 times the number of customer support requests on the lower plan.

All things are NOT considered equal. Your $.99 customers are going to have far more complaints, customer service requests, and overall headaches. All of these things are going to distract you from developing an app that provides real value for your customers.

We see this pretty frequently at Ambassador. If you'd like to schedule a call I'd be happy to share more specific insights around how moving up-market has helped us.

Good luck!