I'm with akmac, if you can get them to commit to a certain quantity then you might be able to lower production cost by enough to compensate for the lower price. If they're unwilling to commit to a large quantity then they probably don't have the capital required to duplicate it either.
As for the business thing, yeah, that's pretty much how it goes. No matter what you do, someone will either duplicate it or one-up you. Look at netTALK vs. magicjack for a prime example. magicjack comes out in 2007 or 2008 and millions of people buy it, then nettalk comes out with a superior device and people jump over to that one. Next year magicjack or some other company will make something will come out that blows away nettalk's device. It's kind of an endless cycle.