> pricing will limit its market to very small size

I'll give Google the benefit of doubt here. I suspect they priced it high either because their production isn't fully in place to handle a massive surge.

OR they are signalling to the market that Google is not just a bunch of free services but also a premium brand like Apple, and they are willing to sacrifice revenue today to solidify their brand.

I think it's a bit of both. Android has its market established, so Google has more to gain through positioning their brand than driving a little extra revenue.

Edit: Now that I think about it undercutting Android partners might be their primary reason–they can risk upsetting Samsung, but prefer not to piss them off too much.