Apple today, in addition to unveiling its new iPad, announced that it has lowered the price of the iPad 2, which now starts at $399 for the 16GB Wi-Fi model--a $100 reduction from its previous price.

The iPad 2 price cut, while not unexpected, is a little less aggressive than what many armchair pundits--myself included--had anticipated.

Amazon's Footsteps

With its $199 Kindle Fire selling well, Amazon has proven there's sizable consumer demand for a low-end, 7-inch color tablet. Last month, in fact, research firm IHS iSuppli reported that Amazon shipped 3.9 million Kindle Fires in the fourth quarter of 2001, enough to snare 14.3 percent of the global tablet market.

As a result, many industry watchers assumed Apple would price the iPad 2 very aggressively--perhaps as low as $299--to offer tablet shoppers an Apple-branded alternative to the Kindle Fire.

But at $399, the iPad 2 is better positioned to challenge the growing throng of 10-inch, Android-based tablets priced between $300 and $400, including the Toshiba Thrive and Asus Eee Pad Transformer.

The 7-Inch Solution

So is Apple willing to cede the 7-inch tablet market to the likes of Amazon, Barnes & Noble (maker of the Nook Color and Nook Tablet), and Samsung (Galaxy Tab)? It seems unlikely, particularly when the iPad still dominates the market for larger slates.

One persistent rumor suggests Apple is developing an "iPad Mini," a 7-inch device designed to compete head-on with the Kindle Fire and the rest of the petite pack. If true, it's possible that Apple is preserving the $299 price point for its 7-inch slate--$100 more than the Fire.

Even if it cost more than a Kindle Fire, a 7-inch iPad Mini would likely find a receptive market. The Kindle Fire, after all, lacks a camera and has other well-documented shortcomings as well.

The addition of an iPad Mini could further Apple's tablet dominance. With iPad models starting at $299, $399, and $499, Apple would compete in three segments of the rapidly expanding tablet market: 7-inch; bargain 10-inch; and premium 10-inch.

Want to read more about Apple's new iPad? The latest issue of iPad & iPhone User, available right now on Newsstand, has hands-on testing of the new features, pictures, availability info and in-depth Q&As to help you decide which model is right for you.