There is no solution to eliminate piracy because there is no DRM model that works.
Key validation works fine for online games, which is a very strange definition of "no." Game DRM is typically licensed, and is a fixed cost, so its cost is marginal relative actual development, and serves as an effective deterrence against casual pirating. Many people wouldn't even give it a second thought unless the DVD they burned for a friend refused to play.
And to say pricing is irrelevant to piracy indicates you really have no understanding of economics.
I'll try to say this as simply and directly as possible: you can't reduce piracy by lowering the price. That's why game companies implement DRM (which only has fixed cost) as opposed to just lowering the price (which gives up marginal revenue on every copy). To say price is relevant to piracy indicates you really have no understanding of economics.
Note that a lot of the income from World of Goo came from the name-your-price deal.
But it didn't necessarily raise their profits. The leakage that occurred was probably massive - the people who would've paid the full retail price, but paid far less because they they were able to name their own price. There is only a finite number of people who will buy your game. Thus, it is important to consider the price, and not just the number of sales. And I am 100% certain that the major game studios have studied this number longer than you have, with smarter people than you or me. Even someone as stupid and hardheaded as you would admit this is true.
Let's also consider that World of Goo is a special case, benefiting from heavy media coverage for using a novel pricing model. If they had perpetually sold the game at $2 instead of $20, they'd have to sell 10 times the number of copies they would've sold originally. Assuming those who would pay $20 would also pay $2, you'd have to find an additional 9 customers for every 1 who has already paid. This doesn't sound too implausible, until you realize it would never work if everyone did it, because there aren't that many people in the world. Think about it: if everyone in the games industry slashed their prices by 90%, existing customers would have to purchase games at 1000% of their current rate for it to work out for sellers.
And that's just to fucking break even.
The problem is that the marginal utility of games goes down sharply as you purchase more (because you only have a limited amount of free time to play them) and your purchases would not go up by a factor of 10 if the price dropped 90%, not even close.
Of course, there are new customers who would buy a game instead of pirating if the price were lowered. Your assumption, holding existing sales constant, is that these people outnumber current customers at a rate of 9:1. If we assume that current customers would double their purchases (rather generous in my opinion), you are still looking at a ratio of 4.5:1. The numbers don't look very plausible even if you triple, quadruple, or quintuple your assumptions from the first segment.
Considering that we already have evidence that suggests people pirate games about 9:1, what you are really saying is that there is a population of non-pirating, waiting-to-be gamers (which is mostly disjoint from current buyers and pirates) in the same order of magnitude as the population that currently pirates games.
Which is utter horseshit.
You may have found specific examples of second or third tier developers who are overpricing their software (and reaping suboptimal profits because of it), but that does not indicate there is a systematic problem with video game pricing. Notice that even Valve only ran their 75% discounts as an experiment, negating your theory that they can optimize profits by permanently lowering prices (or, you know, they would've done so, don't you think?).
An market with unlimited supply and limited demand told them their games were worth $2 a piece.
You've confused this equilibrium price with the one that generates maximum profits. You can't maximize profit without knowing the exact demand curve. Note that profit along the demand curve has nothing to do with the supply when the marginal cost of production is zero.
The fact of the matter is that games at current prices offer pretty good value for the asking price, using, lets say, a movie ticket (~12 dollars for ~90 minutes of entertainment) as a comparison. The market for high-end games is really just not that big, and there certainly aren't 3-4 NEW upstanding customers for every one that exists today (which is your implicit assumption). For most of the population, piracy provides the free perfect substitutes they need and distorts the actual market value for game studios.
If games really were overpriced, the payout to be had by lowering prices is even greater if everyone else overcharges, because it would be so easy to steal market share (since we can agree games have some degree of fungibility). Don't you think publishers would jump at the chance to take advantage of such an opportunity? Yes, yes, they would. Which is extremely strong evidence that it's not the case.
developing a market model for the Android Market that sets prices within some range based upon rate of sales
That won't work. You can't simultaneously maximize for two mutually dependent variables, and there's no guarantee the numbers would converge on maximum profits, assuming they even converged.
For someone as "brainless" I am, I have just educated your ignorant self. You're welcome.