Amazon.com has already dropped the price of its basic Kindle e-reader by $70 to $189. The moved followed a price cut of Barnes & Noble’s (NYSE: BKS) Nook from $199 to $149 and a similar price cut of the most expensive version of the Nook.

Both the Nook and Kindle face competition from Sony’s (NYSE: SNE) e-reader and the Apple Inc. (NASDAQ: AAPL) iPad, which is marketed in part as an electronic reading device.

Amazon.com also lowered the price of its most expensive Kindle–the DX.The Amazon website shows the new price at $379. It previously retailed for $499. The e-commerce company said that the new product would have “free 3G wireless: No monthly payments, no annual contracts.” The product also has a 50% better contrast for the clearest text and sharpest images. It holds up to 3,500 e-books and periodicals.

The competing iPad, which is essentially a flat screen portable computer, sells for $499 to $829, depending on features. The Kindle price cut brings its retail sticker well below the iPad.

The price cut on the high-end Kindle raises the question again of whether Amazon and Barnes & Noble can make money on the devices or if they are “loss leaders’ meant to sell e-books. The Amazon e-book store offers thousands of books with some best sellers available for only $9.99. Amazon has been at war with some publishers over whether its low price for e-books undercuts the profitable sale of physical books.

Amazon has, by some estimates, sold 4 million Kindles and has 60% to 70% of the market. The price cuts are designed to maintain its dominance in the marketplace.  In the meantime, it may lose money on each e-reader and try to make it up on volume–one of the greatest mistakes that any company can make.

Douglas A. McIntyre

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