I think it's the idea that if you price your software too low then it's value will be perceived as low. You then have customers paying a low price for a low (perceived) value product and you're into a death spiral.

Is this the same as "hidden costs" ? That is a cost not showing up on the bill. For instance the time spent to get the thing working and keep it working.

I've heard it used as argument against linux and free software.