Interesting Q, because this was brought up earlier this week. 1995 was an exciting year!
The original PlayStation cost between $350-$375 to build. At the time, consoles were not sold at a loss. The original PlayStation was launched on Dec 3, 1994 in Japan for (I believe) ~39,900 yen, which at the exchange rate then (according to a table at the federal reserve -- 100.1824:1) would have been ~$398 USD. This price point was what Sega targeted for the Saturn, which was announced to also be $399 in May '95 at E3. Note also that aside from announcing the Saturn's $399 launch price, Sega also announced there would be no 'Saturnday' launch event as scheduled. Instead, Sega floored the E3 attendees with news that the consoles were en route to stores and available for sale effective immediately. In response to Sega's bombshell, Sony announced 15 minutes after Sega was done with their unveil that the PlayStation would only be $299 when it hit the US in September of that year (4 months from the E3 convention). This surprise promise of a $299 NA launch stalled Sega's momentum. As a matter of fact, one of E3's most famous anecdotes is a Sony rep walking up to the podium at the conclusion of Sega's presentation, saying, "Two hundred and ninety-nine dollars," then turning around and walking back to his seat. He said nothing else.
Sony's competitors responded with threats of legal action if Sony carried through with the $299 price in North America on the grounds of 'dumping.' Dumping is producing a product in one country, then selling it to an overseas market at a different, lower price than your domestic price. When these rumors began to circulate, the PS price in Japan was immediately lowered by 10,000 yen ($299 USD), clearing the path for the $299 US launch. All of this was done specifically to bury the Saturn, which Sega couldn't afford to discount 25%, nor did Sega have the luxury of a one-year head start in Japan where the console at least turned a profit. Selling the console at a loss was unprecedented, but the strategy worked.
The colossal sales of the PlayStation not only buried the Saturn, but also the 3DO brand and the promised M2 successor, and the N64 too, which wouldn't even be released until a year later. The launch strategy worked so well, Sony duplicated it with the PS2. The PS2 launched first in Japan in March '00 for $399 and turned a profit initially on the first 3M units sold, then it was promptly cut to $299 to mirror the North American launch in Oct '00, at which point it was sold for a loss through the first 18 months.
