I think the trick is to know your audience. My last band had deluxe vinyl packages, tote bags and CDs, all of which could part fund touring. My rock 'n' roll band pressed a small handful of CDs last year and we still have 100s left. I've seen a former band of mine offer an EP for £2 and the perception was that it was cheap because it was rubbish (it wasn't) and yet other bands can price themselves out of the market.
My current band has a nice range of merch and yet doesn't seem to do as well as my last band on merch sales, despite it being great quality. New territories sometimes mean better sales but if you play to similar crowds, once they have it, they have it.
My thought is, if it is being asked for, do it. There's nothing wrong with doing it for yourself but bear in mind the audience aren't always going to be on the same page. As an originals act, we work the merch stall afterwards, much like we would work a stage during a gig.