If you want to explore other options, the 9" Kindle Fire HD at $299 or 9" Nook HD at $269, or 7" Nexus 7 are similarly pretty competent. Perhaps Apple is trying to mitigate the cannibalization of the larger iPad, but this does seem expensive.
I bought my Nexus 7 because it fits in my pockets. Everywhere I would have a bag with a bigger tablet with me I would have my big notebook anyway.
Having passed on every iPad to date specifically because of the size issue, I'm really excited by this one.
E.g. the new iPad may have the iPad 3's camera or GPU.
The iPod touch is very competitive, it has been around for years with pretty much zero competition. iPods were very competitive for years, again primarily with no one being able to compete. The iPad has always been competitively priced.
I doubt the iPad Air will be as competitive in price as the others, I just don't see a $199 level, but I do not agree that Apple is not competitively priced in mobile.
Apple Stores are a big part of Apple marketing. The service received a these store can range from exceptional to terrible. They don't pay the people who do technical support or work in retail big bucks either.
I am not surprised Apple is doing so well, given the premium they charge for their devices.
The fact that they hire those people at all represents an expense and a service that Android manufacturers just don't have. The operating costs for an Apple store are probably higher than Nexus 7 retailers like Gamestop, Sam's Club, Staples, Office Depot, or Kmart--and the level of service is largely a step ahead as well. Either way, it's still an expense that isn't accounted for in manufacturing margin, which was the original point of the exercise.
Apple uses its giant scale to literally buy up all supply of lots of components and other resources (factory output, air freight, you name it). It's tough to compete.
Walk into the store and you'll see that the best phones from both Apple and Samsung cost the same amount.