The thing that's so preposterous about this whole "MSRP" thing is that royalties are usually based on a percentage, and the ultimate amount made on a game is usually determined by the total number of copies it sells. For instance, if my royalty is 10%, I'd much rather get 10% of 100,000 copies sold at $19.95, than 10% of 30,000 copies sold at $39.95.
that DS and DC are factoring in the "niche-factor" of the game. From some of DS's posts, it seems that he expects a clear lower bound on the sales of his game (the niche crowd that will without a doubt buy the game--presumably consisting partially of those losers that hang out at his forum). Also, since it's a niche product, I'm pretty sure they've figured an upper bound on the sales of the game, meaning that there's no way they'll ever sell more than that (because it's not a product for a general audience).
In the case of a product like this game, I don't think DS expects that lowering the price will increase the sales (maybe a little, but not enough to justify it). Instead, DS is banking on the lower bound of the game sales at the higher price. x
units at $39.99 is better than x
units at $19.99 because they're not expecting more sales based on the lower price.
That's the impression I got from DS's posts, at least. But if I were a believer in karma, I'd say he's had it coming for a long time now.