It is unnecessary, yes. But, it is also an emerging market.
Apple sees stuff like the the Galaxy Tab, Nexus 7, and even the Kindle Fire. Smaller tablet devices. They want in on the market early, and just making a tiny iPad is the easiest way to do it. iPad, iPhone, iPod - markets Apple either created or got in very very early into, or revolutionized. This smaller tablet scene could pass them by if they didn't act.
Price may deter buyers. Tough to say. Apple stuff, though I like and buy some of their products (and not nearly as often as they'd like me to, I'm sure. My laptop and iPod are from 2007), is over priced. But that hasn't deterred consumers yet. They've built a terrific brand and what they've managed to convey if that they have a quality product. True or not, or if you agree or not, is irrelevant. That's the public's perception and consumers would willingly pay more for something that they believe to be better.