I'm not sure Apple misread this at all, certainly concerning price points, their mistake was nothing to do with a $100 difference or anything of that nature, it was in assuming their company competed with Android so directly.
You don't buy an iPhone, any iPhone, because it represents good value for money: if you want that, go for a Nexus 5 every day - that phone has the best "features" of any device even close to that price point. You buy an iPhone because you want the best OS (assuming you are the average user who is clueless as to what Unix is, let alone how to manipulate it), on the best ecosystem, with a device which just works and does everything you want it to in an easy, simple manner time after time. Cost really isn't the differentiator. As such, when presented with two phones, regardless of the cost, the Apple consumer will choose the better one. Now sure, if that price difference were $300 it would give pause for thought and the 5C would be an extremely attractive option, but thats not what Apple wants since it would kiss goodbye to a massive chunk of profits.
Switch now to emerging economies where import taxes can make expensive items even more unaffordable (think Brazil), the 5S has no place their. This consumer that wants the best no matter the cost doesn't really exist since the middle class is so much smaller, and value for money is king. The 5C allows Apple to be remotely competitive here, especially when you hold a 5C and an S4 in your hands and just feel the difference. So - the 5C has a purpose in developing economies.
Apple can either a) not sell it in developed countries, to many complaints from media, consumers and Android fanboys who say this is one of the reasons Apple sucks - forcing richer countries to buy the more expensive phone or b) sell it, but only at a slight discount, such that it might just convince a few people who otherwise wouldn't go Apple to do so, but not cheap enough to cannibalise the 5S.