Actually, the purpose of digital distribution is be able distribute to a wider area/market. The lower pricing is just a by-product, since there's no physical media associated with the sale. It's always up to the maker how to price a product, just as it is up to the buyer whether they think it's worth it or not. Buy or don't, enough said.
I've always thought it would end up that way. However, I recently remembered Apple being sued because of overpriced apps. This may or may not be relevant, and may or may not influence pricing. But at least with Nintendo, you can't just press a few buttons and end up with a bill in the thousands.
Really the big draw to digital distribution is the pricing, and pretty much if you can't price it right then you're going to fall flat on digital distribution.
There are of course other upsides to digital distribution like eliminating the need to carry around multiple cartridges, no fear of losing/breaking the game, constant availability (nothing can be "sold out" digitally), quicker access (it'll probably be faster to download a game than wait for it in the mail or go to the store and get it), and cheaper production costs for companies (they don't need to spend cash on producing discs, boxes, manuals, etc), and an easier market for indie games.
Still, a digital service is awful without preferential pricing behind it. It's incredibly hard to wean ego-obsessive collectors or game trading fanatics off of physical games unless you can give them lower prices. It's why Steam games are often $10 less when they first come out and why their sales happen quite quickly.
Just make sure you're not like Microsoft who thinks that digital distribution itself is a valid excuse for inflated pricing (see Games on Demand).