I received the following reply from Google in response to my question about their pricing policy.
We will continue to work on refining our pricing algorithm with regards to discounting. Please note that the revenue share you receive will be based on the List Price you set in your account, regardless of any discounting Google may apply.
The Google Books Team
I like their policy that they will pay royalties based on the author's list price even when Google decides to charge less. The downside is that a lower price at Google Books could trigger a price match at Amazon where they'll pay royalties based on the lower sales price.
If your ebook sells for $2.99, not only will a price match cost you a drop in the sales price, a price match would also drop your royalty percentage from 70% to 35%.
I imagine Google Book might be a good channel if you don't sell at Amazon but it seems to me that you could easily end up in a bad spot. I believe that for most books, Amazon will outsell Google. The few books Google might sell in comparison to the amount Amazon might sell could drag Amazon royalties down to the point that it's not worth publishing on Google.
What do you guys think?