Should I slash my prices?
A couple of days ago, I launched a managed application hosting service: https://cloudplane.org/
We offer managed hosting for open-source apps such as Ghost, Mattermost and more. My pricing calculations are based on the infrastructure cost plus a healthy profit margin. The cheapest instance costs €4 (~$4), which is comparable to a DigitalOcean droplet and IMO pretty good for a managed service.
But there is a competitor that is way cheaper. We have differences in service quality and our infra simply costs more, but we are in beta so promises of high availability are meaningless. I could reduce all my prices by 50% and still make a small profit. Should I do it?
You just launched. Nobody is even aware of your service, yet. If you're already slashing prices, you won't make any money if you do get customers. You might need some margin to pay affiliates too. Keep your prices in my opinion.