OK...so here is my two cents
I have been in SL for a few years and have always bred kittycats. I have seen the market go up...and then go almost stagnant. Virtual worlds run parallel with the real world, as those who have extra money to dump into a game will do so, and when they don't...well then it slows down.
I love new traits, and seeing how various breeders put their traits together. However for me, I refuse to spend more than my linden balance on a pixel cat. I will never purchase linden to pay upwards of $50 (or more) real life dollars into one kittycat. Because for me, this then turns my fun into a "oh my gosh, now I need to make that money back" type of scenario. This takes the fun right out of it. Much like real life breeders (which I did for many years) that get caught up in the money aspect of the business, it is no longer fun and turns friendly competition into a cut throat business (which we see in all the breedables). The only way to avoid that, is to not get caught up in it.
So for me personally, I love KC, and will probably breed them as long as I am in SL. This is not a business for me, it is a hobby. I am happy when my cats get bid up, lets admit it is fun; and I have bid up a few that I really wanted. There will always be price gouging and price drops....I just walk away or not bid as that is a choice I make. Do I bargain shop? Sure I do, but I also have no problem paying a thousand or more linden on a kitty. I do draw the line at tapping into my real life money to pay for a kitty...that I will not do. So it comes down to personal choices, and what each of us has to spend and what we want. So for me, I price my kitties at what I would be willing to pay for those traits. Are some of them low, possibly, but it does give someone else the ability to purchase a trait that they are looking for without breaking the bank.