When there is a business tie-up between the content provider and the device manufacturer for using that content, the price of the device has almost always been very inexpensive to lure in new customers. The price of iPods have steadily fallen because Apple makes money out of songs. Cell phones are inexpensive with service packages because of money/minute. Amazon has a deal with almost all the leading publishers, and almost every new book (which I assume is a major revenue generator) published will/should have an electronic version transferable through Kindle. In that case why price the reading device as high as $359?
Are they waiting for Kindle's usability to evolve? Are they waiting for the market for e-books to mature? We're in a recession now, didn't you know? People don't mind shelling out $10 for a Grisham e-novel. And they won't mind another $10 the following month for their favorite painter's e-biography. But they mind a lot paying $359 upfront for an e-reader - which in effect turns away the subsequent cash influx because of the sales of Kindle editions. The recent version, Kindle 2 offers more value (more memory, smaller size, etc) for the same price. For me, lesser price and same value would have made more economic sense. This would be taking a leaf from the success of Netbooks - a computer with lesser memory & lesser processing power at a lower price.
I think Amazon has manufactured only a limited number of Kindles so that it can collect extensive feedback and incorporate them into their next version. This way, a lot of users stand in queue and there are only a few disgruntled users. The electronic publishing industry is still an infant. The publish-on-demand and publish-yourself style services have greatly reduced inventory, thereby only printing copies that has a buyer. As the older generation which held newspapers in the mornings and flipped pages go away, Kindle and its competitors will become the default standard of reading. Reducing the price, say, to $100 and going for an early kill will disrupt the existing publishing model. Either that or Amazon needs to be kicked in the butt by somebody already in the content business - Apple or Microsoft or Sony.