This is what Amazon seems to believe, although they are marking down prices, not marking up.
They appear to be fine with producing cheap, commodity tablets as a means to enable more content distribution from their services. Classic razor blade model. It's worked well for Kindle (ereader version) so far, and I imagine it will work pretty well for their tablets.
When you have good content, you want to practically give away the vehicle that delivers that content.
It would be possible to come at it from the other direction though.
Let's say Apple decided to buy up some big content producer or network. Let's say HBO because that's the one everybody seems to talk about.
They could now make that content exclusive to their devices, or perhaps even models of their devices. Say you want to watch "game of thrones" you have to buy the 16GB instead of the 8GB one of whatever. Despite the fact that there is no technical reason for this to be required, you can then charge much more money for the 16GB one, an order of magnitude more than the extra flash storage is worth.
They appear to be fine with producing cheap, commodity tablets as a means to enable more content distribution from their services. Classic razor blade model. It's worked well for Kindle (ereader version) so far, and I imagine it will work pretty well for their tablets.
When you have good content, you want to practically give away the vehicle that delivers that content.