Ask HN: App pricing

I'm polishing my first iOS app and I'm practically ready to submit it to the App Store. The whole idea of this app evolves around in-app purchases. The app itself will contain some valuable, say, "packages", but the whole idea is about buying and using new ones.

So, I'm a bit stuck here. I'm expecting majority of my revenue come from the in-app purchases (mainly priced as $.99), thus the app price should be somewhat irrelevant. On the one hand, I can release this app as Free, but there is the problem. When I personally look for an app in App Store I hesitate to download and use a free app. Why is it free? Are they gonna make money showing ads? (I hate ads). Will the developer support future iOS versions? I just don't know. Free stuff isn't reliable to me.

On the other hand, $.99 looks a bit 'cheap' and, frankly, I avoid buying .99 stuff either. Setting price at $1.99? Wouldn't this price become a psychological barrier for a casual app shopper? As always, I don't know. Btw, there is no good alternative to this app in App Store (either free or paid). HN readers, what are your thoughts?