When I am looking to download a new app, I can never tell from the description and screenshots if it's good or not, so the question is always - "What if it's crap". With an app that costs 0.99, the answer is simple - "Let's try it and see", so it's effectively a very cheap trial ... that just happens to come with a free full version. I would've readily paid more for latter, but I already got it and it was free, so what's not to like. This is why in-app upgrades would seem a natural way to convert people who like your app into paying customers. Let everyone kick the tires and let those who like it move on to a full version.
tl;dr - Indeed start charging more, but through in-app upgrades.