Ever since Amazon (NASDAQ: AMZN) and Barnes & Noble (NYSE: BKS) released the Kindle Fire and Nook to great success, Apple's (NYSE: AAPL) hold on the tablet market seemed to slacken enough to allow its rivals to grab market share.

Amazon's $199 Kindle Fire sold millions during the holiday season while Barnes & Noble announced a $199 version of its Nook Tablet to meet Amazon's tablet head-on. Despite the strides made by its rivals, the tablet market is still Apple's stomping ground.

Analysts and fans are looking forward to Apple's new iPad 3, but along with rumors about the product there have been speculation that Apple could slash prices for the iPad to compete with Amazon and Barnes & Noble in the lower end of the tablet market. But would such a move help Apple at all?

The iPad has started out at $499 for the 16Gb Wi-Fi only since it was originally launched in 2010. When the iPad 2 was released, Apple cut the prices of the iPad to clear its inventory. Apple has used this tactic to clear inventory when it releases a new generation of its products. Apple could release the iPad 3 at $499 while leaving its remaining stock of iPad 2 units at $399 or even $299.

Another path Apple could take is by releasing the rumored iPad Mini. News about the 8-inch iPad resurfaced last week after a Wall Street Journal article cited unnamed sources saying that Apple was developing a smaller tablet. Analysts expressed skepticism about such an idea, saying the late Steve Jobs was against a smaller screen for the iPad. However other reports have surfaced agreeing with the Wall Street Journal article.

"Based on our sources, we're very solid that Apple will release a smaller iPad that uses a 7.85-inch display, essentially an 8-inch screen, this year," said Rhoda Alexander, senior manager of tablet and monitor research at HIS iSuppli.

The "iPad Mini" could be sold as low as $299, which could wreak some serious damage to the lower-end tablet market. With a $100 difference between the smaller iPad and Amazon's Kindle Fire, consumers would want to shell out the extra cash to get their hands on a premium tablet. Selling a cheaper iPad would also allow Apple to reach out to a consumer base that it usually ignores.

"Rather than just maintaining their dominance of the tablet market share, a smaller iPad would let them make a move to crush the opposition," said Alexander.