There are also rumors floating about that Apple is developing a smaller 7 or 8-inch "iPad Mini" which could be available by the end of 2012. Some analysts suggest that such a tablet might sell for $300, and it would crush the competition. I will make a more aggressive prediction that Apple would sell it at $250--or even $200--and go straight for the jugular of the Kindle Fire.
Apple is sitting on a mountain of cash. It has money to burn and could easily cut into the iPad profit margin, or even sell the devices at a loss just to squash the competition and dominate the market. If the iPad has dominant market share, Apple can make up the difference in the long run through revenue from apps and other services.
Apple would also benefit from the sort of self-feeding vicious circle created by iOS and OS X. The ecosystem Apple has created with iOS devices and iCloud and extending that with even more integration with the upcoming OS X 10.8 "Mountain Lion" form a cohesive unit that works quite well together, and makes it compelling to get other Apple devices once you have the first one. A spike in iPad sales could very likely spark a dramatic rise in Mac sales as well.
Rival tablets are already struggling. Sales of competing tablets are anemic compared to the iPad, and competing tablets have been forced to cut prices to try and give users some incentive to even consider their tablet over an iPad.
If Apple undercuts the price of competing tablets, it could be game over.