Why Apple Didn't Release a $299 iPad

NEW YORK ( MainStreet) -- In the weeks and months leading up to Apple's ( AAPL) Wednesday announcement of a third-generation iPad, there were rumors the company might introduce a $299 version to be more competitive against low-cost tablets such as the Kindle Fire and Nook Tablet. One version of this rumor claimed that Apple would debut a 7-inch iPad in the $249 to $299 price range; another claimed the company would introduce a cheaper 8 GB iPad 2; and some just speculated that the company could choose to slash the price of the baseline 16 GB iPad 2 to $299.

Needless to say, anyone holding out for that $299 iPad was probably sorely disappointed. Apple did cut the price of the iPad 2 from $499 to $399 and has even gone so far as to offer a refurbished version for $349, but that's as low as it's willing to go, at least for now.
"Some thought Apple would try to conquer the market by dropping the price of one of its iPad models to $299, but a price drop wasn't part of the company's Wednesday announcements."

"The pricing strategy they're implementing is not a market-share growth strategy -- they pretty much own their segment of the market -- it's a margin protection strategy," says Rob Enderle, principal analyst at The Enderle Group.

In other words, the company thinks being too aggressive in pricing the iPad 2 might actually do more harm than good. It would cut into profit margins and there is not enough competition to justify that loss. Instead, Enderle says the company dropped the price just enough "so if someone wants something cheaper, the iPad is within shooting distance."

All of that could change in the coming months if another 10-inch tablet such as Amazon's ( AMZN) rumored follow-up to the Kindle Fire were to come out and start taking market share away from the iPad. If that happened, Enderle says Apple might be more willing to cut the price to stay competitive.

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