There's also the fixed costs (development) to consider. The point he's making is that people are willing to may for software, but there's an inherent price. If the vendor's price is higher than the inherent price, people will pirate.
If this is the case, then people should be less willing to pirate a game that costs $millions to make than a game that costs $thousands because it is more "fair" to pirate a game that was made on a budget than a game with high fixed costs. I don't think that is the case. Rather, I think piracy is a function of how much a pirate values his time and effort and how much he likes the software product.
On a commentary note, what would drive a hacker to write a crack for a game? Most of the time it's not even for money.
Others just download it after a search.
The copyright holder's problem occurs when they create work that has less value than what they spent on it, based on that equation. This, I believe, is the author's point. When the public sees your product as having less value than you do, they will be unwilling to pay the amount you charge, and will pirate your work.