Apple is developing a new tablet with a 7.85-inch screen that is likely to sell for significantly less than the latest $499 iPad with its 9.7-inch display, several people with knowledge of the project told The New York Times.
The "mini-iPad" is expected to debut this year, the sources said.
Amazon is said to be developing a new version of the Kindle Fire with a larger display to compete more directly with the current iPad, the Times reported.
Apple's strategy of offering a smaller device is intended to keep customers who want different sizes tablets firmly wed to the iPad product family, analysts and technology industry executives said.
A smaller iPad could appeal to people who do not carry their iPads with them because they find them too large and heavy, said Leslie Grandy, a former Apple manager who is now a consultant to start-up companies.
While a device with a 7-inch screen is likely too big for pants pockets, she said, it would be a good fit for women's purses.
"I really do feel like this is the sweet spot for [Apple]," she said.