As the demand for e-readers continues to expand, Sharper Image has decided to jump into the fray. The company is best known for its store and catalog that sell high tech gifts and gadgets. Now Sharper Image has decided to complete with Sony, Amazon and Barnes & Noble, who are emerging as the leaders in the e-reader gadget category. Already, early competitors in the field like Plastic Logic have dropped out of the reace.

The Sharper Image e-reader is named “Literati” and will retail for about $160. It features a color screen and will be powered by the Kobo e-book store. The device has wi-fi connectivity and supports wireless downloads, plus free reading apps are promised for the Literati. Sharper Image plans on selling its e-reader in its own stores and in other stores including Bed Bath & Beyond, Kohl’s, Macy’s, JC Penney and Best Buy.

A new e-book reader called the Nook had its debut last week, and it may just give Amazon’s Kindle, the leading e-reader, a run for its money. The Nook is from Barnes & Noble. Some of its unique features include a full-color strip of book covers at the bottom of the display that allows you to pick a book to read.

The Nook also supports sharing e-books with friends, which Wired magazine says may be the feature that makes the device go viral.

The Nook will be sold in Barnes & Noble stores as well as online, meaning customers can use B&N’s free in-store Wi-Fi to demo the look and feel of the product before buying. On sale at the end of November, the Nook is available now for pre-order at $259 (which is very close in price to the Kindle-2).