Probably not on price, but on market share. iPads currently are the only decent game in town, except for the e-reader niche; they're safe as long as Android doesn't reach a critical mass, which would allow a healthy apps market to develop, and competitive HW prices to be reached through economy of scale.

That's worth giving up some gross margin, and even cannibalize part of the iPad 3's market share. I don't know how they'll address the Nexus 7 threat to their monopoly; through a 8'' tablet, by further dropping the iPad 2's price, by litigation or other means... but they will fight back with all their might.