Apple competes on price in ways that preserves their brand- offering more for the same price, clearance/refurb section, previous model at a discounted price.

I agree with Kottke, Apple has a huge ability to compete on price if needed, and I think they are more than ever. Discounted previous models used to be limited to clearance/refurb. But now you'll find the iPhone 3GS and the MacBook prominently displayed as a part of the lineup. The iPhone is available via the online store "from $49", not "from $199".