Why would Apple release a cheaper product to replace a more expensive product? I don't get it. Maybe it's a good idea to lower down the revenue.
Think of it this way:
2 sizes of iMac... 2 sizes of Macbook Air... 2 sizes of Macbook Pro... 2 sizes of Macbook Pro with Retina. And now 2 sizes of iPad.
Plus 3 phones... 5 iPods... etc.
It's actually a normal thing... having a product line instead of just one product.
Or by using your logic... the 11" Macbook Air destroyed 13" Macbook Air sales.
And the Ford Fiesta destroyed Focus and Fusion sales...