Speculation on Apple's pricing has run rampant over the last couple months as rumors of a smaller iPad have become more probable. I'd like to take a moment and lay out my thinking.

Currently, to enter the tablet game with an Apple product requires $399 for an iPad 2. Many competitors have priced smaller tablets at various price points below that level. A couple of the most prominent recent products follow below.

7" Amazon Kindle Fire starting at $159 to $174
7" Amazon Kindle Fire HD starting at $199 to $264
7" Google Nexus 7 starting at $199 to $249
8.9" Kindle Fire HD starting at $299 to $614

So where will Apple price the new smaller iPad? That depends in large part upon what their goal is and what's motivating them.

The popular speculation has been that $299 would be the high end starting point, $249 would be very aggressive and $199 would be the nuclear option to destroy the competition. It seems to me that anything but the $299 price would not allow Apple to maintain their usual margins.

So why would they consider anything lower? They'd do it if they felt some real threat to the category coming from the competitors tablets. While none of these products have set the world on fire, we know Apple's market share in the tablet space has begun to shrink over the last year.

We already know that Amazon breaks even on their products and Google is likely losing money on theirs. Amazon has chosen to make their money on media sales after the fact, while Google doesn't seem to care about this being a revenue generating product.

I think Apple's supplier relationships and advantage of scale would allow them to enter the market with a base model priced at $249, then moving quickly upwards with increased storage and cellular wireless capability. They'd hope that few people would actually purchase the base model.

Yesterday I linked to a 9to5Mac story suggesting that pricing would begin at $329 for the base model. This is certainly higher than most rumors, and there would be some negative press about the price being too high.

I agree that it seems high, but not if Apple isn't releasing a smaller iPad as a result of the competition. There's another argument to make for why the smaller iPad exists. Because it stands on it's own as a way to solve a problem users have.

If Apple thinks of the new smaller iPad as a unique device that has attributes that users will place value on, there's no reason to discount pricing. The natural starting point would be lower than the 9.7" iPad, but not extremely so. Under this scenario, a prospective buyer would value the thinness, light weight and smaller size as almost equal features to the current iPad's large screen.

Seen in that light light, $329 seems about right. I've always felt at first glance that Apple's prices seem a bit higher than they need to be. The lone exception being, ironically, the current iPad.

Apple will want to maintain a premium margin on a product line that's as young and prestigious as the iPad. They'll be weighing that desire against a move to secure market share and make a very real dent in the education market.

My guess is the higher number is more likely. If the response isn't what they want, they can always lower prices. They've done it before. So, will you be ordering a 16GB Wifi iPad Mini for $329?