When cool products cost a lot of money, there’s plenty of opportunity for other manufacturers to introduce less-cool competitors–or ones with fewer features, at least–at lower prices. But what happens when the cool products get radically cheaper? We’re seeing that entertaining scenario play out in the e-reader market.

When bookstore behemoth Borders announced in March it would start selling a basic reader called the Kobo for $150, it was $110 less than the Kindle and Nook. And even though it didn’t have a 3G connection–it made you buy books on a computer and sync them via USB–it was a deal.

But then Barnes & Noble set off e-readers price wars by cutting the price of the Nook from $259 to $199 and introducing a $149 Wi-Fi-only model. Amazon knocked the Kindle’s price down to $189 a few hours later–and last week, it shipped the third-generation Kindle in both a $189 3G model and a $139 Wi-Fi only one.

Borders tried to respond to the price cuts without doing a price cut by throwing in a $20 gift card with the purchase of a Kobo. That wasn’t good enough, especially when the $139 Wi-Fi-equipped Kindle started shipping at a price ten bucks lower than the USB-only Kobo. So the Kobo is now $129.

The retailer also sells an e-reader from Aluratek that’s now $99.99, down from $170 a few months ago. (I haven’t seen one in person, but my friend and former colleague Melissa Perenson of PCWorld likes it.)

The Kobo’s new price is thirteen percent less than the original one. But the $139 Wi-Fi Kindle is 46 percent cheaper than Kindle’s $259 starting price before the price wars broke out. If Borders had been that aggressive with the Kobo’s pricetag, it would be $80, not $129.

Should you buy a Kobo for $129? I wouldn’t; for $10 more, the $139 Kindle gets you Wi-Fi, a better screen, a better user interface with a real keyboard, and other upgrades. (I have the new Kindle on hand and am finishing up a review, but here’s a preview: It’s the best E-Ink e-reader to date.) It’s no contest–as if a Honda cost only a few hundred dollars less than a Lexus.

(Side note: The $139 Kindle is sold out until mid-September…but I’d still wait rather than buying a Kobo now.)

If the Kobo were $80 or so, it might make sense as a budget alternative to the Kindle. But I suspect that Amazon has thought that far out–and I’d love to know just how little it’s willing to go with the Kindle’s price.

 
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