The question is whether or not outselling the PS3 is more important than being profitable. If Sony is losing money and Microsoft is making money with a larger US installed base then why rush to stimulate more sales on a loss of total profits? Pachter already mentioned the Wii situation; had Nintendo priced their console at the $300 spot on launch and dropped the price later they might've made much more money than they did. Microsoft dropping its price to cause more sales of its system simply doesn't compute. Outside of September's gaudy numbers the lead built by the PS3 isn't so substantial. In fact, PS3 may not get the better of the 360 this holiday season. I understand this plays into your point that the PS3 will never catch up, but the assumption of the price cut is a bit juvenile. Sony made the price cut because they were getting signals of a slow death for their console and they needed to gear up and take blows in order to extend their lifespan and increase their future chance in the industry. Microsoft took a loss in their games division until what? 2007? 2008? It's not about swinging dicks, it's about financial health.
On the other hand; a $99 core console and $199 elite to coincide with the launch of Natal ($250 bundle?) would make a lot of sense. That is Microsoft trying to eek in on Nintendo territory and taking a loss might be more suitable in that regard. Microsoft blows its load without focusing on taking a share of Nintendo's hardware/software pie.
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