While manufacturers struggle to compete with the iPad, Apple has managed to do so successfully. In fact, current demand for the iPad 2 is nearly equal to that of the new iPad.
The iPad 2 dropped in price by $100 when the new iPad was introduced. A recent Consumer Intelligence Research Partners (CIRP) report notes that the iPad 2 accounted for 41% of all iPad sales since the new iPad was launched in March, 2012.
Apple CEO Tim Cook noted that the drop would make the device more appealing to price-sensitive customers. CIRP partner Josh Lowitz agrees, telling AllThingsD, "The lower price of the iPad 2 seems to be attracting many new buyers, and bringing thriftier customers into the fold...our data suggests that a lot of iPad buyers bought iPad 2s right up to and after the launch of the new iPad."
How does a device compete with the iPad, then? It seems step one is, "be an iPad."