I charge 99 cents for a short story because that's what e-publishers charge for a short story. I charge 2.99 for a novella (>20K) because that's what every epub that I know of charges for a novella.
I'm nobody from nowhere, and my trade published short (4K words) sells 5-10 copies a month. One of my self-pubbed shorts (7K) sells two a month. My latest short (3800 words), for which I have done no promotion, has only been up for a week but sold twenty copies across all the stores where it's available.
When I say no promotion, I mean it. I haven't gotten around to changing my sig here, or tweeting it, or anything. (I didn't catch a stupid mistake and I wanted to fix it before I exposed it to the AW crowd. Then things got busy at work.)
In other words - I think it's pure luck and you might as well put up all your shorts for 99 cents. Some money is better than no money. But I can see why people might not bother.
The math: You get 35 (35% royalty) cents for your one dollar story on Amazon. You get 2.10 (70%) for your three dollar story/collection.
Yes, you have to sell six short stories priced at 99 cents to make the same money you make on one sale of a collection.
Why bother? Why not? 99 cents is an impulse buy. Someone who's never heard of me might be willing to try a short story if they can do it cheaply. I have to do the formatting anyway for the collection I'm planning. Might as well have the shorts out there earning me a little pocket change while I'm writing the rest of the stories.
Side note: The fact that entire novels are also available for 99 cents is really not relevant - I mean, I don't go to a nice restaurant and say, "OMG, 12 bucks for what is basically a burger!? Screw you, I'm going to McDonald's and buying three burgers AND fries!!"
I'm not saying I'm a gourmet restaurant, but I am certainly a nice little sidewalk cafe with cute curtains.