I think the idea of the iPad Mini is to head off Apple fans that might want to try Android on a Nexus 7 or a Kindle Fire HD.
But I think Apple screwed up the pricing. I doubt a person with a beautiful iPad 3 or 4 would say, "I wonder what my iPad looks like small and I'm willing to spend $325 to try it out?" Instead they would say, "I wonder what this Android thing is? And it only costs $200.00 to try it out and it can't suck that bad, can it? And it has lots of apps and plays Flash video." And so a person would buy a Nexus 7 (or for the Amazonians a Kindle Fire HD) for $200.00. Lower risk and more information for their $$.
That's what I think.
Edit. Ha ha ha. Look what Amazon has on their front page: