"it would be entering a sector dominated by three competing powers: Amazon, Rakuten's Kobo, and Barnes & Noble. These firms have largely divvied up the e-reader market between them, leaving little room for a fourth player."
As long as ebooks are sold in an open format, there's no such thing as "divvying up the e-reader market". A new player entering the market with a reader that works with the books people already have doesn't have any disadvantage compared to the established companies. It's no different from a new company deciding to sell something like speakers - it can play all your music just as well as anyone else, so where' the problem? Obviously name recognition and brand loyalty exist, but history has shown over and over again that they're not enough to prevent companies establishing themselves in an existing market.
The only slight problem is that Amazon prefers not to use an open book format, so people already stuck in their ecosystem have a strong incentive not to move. But Xiaomi could easily take significant market share from the other two, especially given that they're already a better known brand in many places.