You decide prices based on your research, what your competition is selling similar products for, market trends, your industry experience, and yes, the age-old principle of supply and demand applies a little. It is really a very basic practice in marketing and advertising to use testing practices, especially with online marketing. Offer a product at one price point, then offer that same product at a higher or lower price point against a measured media statistic such as clicks or page views. Make sure you use unique media codes for each different ad so you can track results.
Supply and demand is not a real factor when pricing individual products since the market sampling may be very small, but will apply to larger scale commodities and even service industries.
Larger retailers, both online and brick and mortar stores employ merchandisers or buyers to select product, find suppliers, negotiate prices, and assist in setting selling price points. These employees are or should be experts in their assigned product category, and the success or failure of a company often depends on their skill.
Companies do use focus groups to test consumer acceptance or resistance to price points, and every larger retail company of will use an analysis featuring sales results for each media used, a calculated ratio of sales results versus media costs, an analysis of competitive pricing, profit margins, and market or industry trends. This analysis will measure a product’s performance versus dollars spent on retail space or marketing costs. The goal is to get rid of the under performers and feature the winners more prominently.