Squilliam said:
They don't need to drop $100 straight away. Its likely that a large number of people, maybe even a majority of potential PS3 customers still see the PS3 as the superior good and the Xbox 360 an inferior good. So therefore a ratio of even $250 vs $350 between the premium and 80gb PS3 is likely to come out more in Sonys favour than you would otherwise expect. My earlier prediction I made on Steam to Makingmusic was this, before the sudden bad news anyway: They cut the price $50 to $350 early in 2009 in the United States because thats where they need to take action the most. They offset the pricecut with revenue from games like Killzone 2 coming early next year and stem the most important area of bleeding. Then in late 2009 they cut the price again to $300? (maybe) and the price in Europe to $350 Euros. Its a reverse of what happened with the Xbox 360 in 2008 essentially. I don't know if they can do just that next year but I believe they can afford to wait until late 2009 before making any moves. If they don't make any moves in 2009 on price then 2010 is lost for them.
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My god, someone on vgchartz actually understands the difference between investment and operating costs. Squilliam you have destroyed my world view. Microsoft's initial loses on the xbox360 are irrelevant (even if the management at MS weren't nearly immune to any theoretical shareholder revolt) and the same is true for the PS3. If in the end the PS3 turns out to have a rather poor ROI (which seems likely), the only thing this will affect is a willingness to make so many abrupt hardware changes simultaneously in the future. The only thing that could possibly be change this is the difficulty firms currently face is raising capital. However Japan has a much more convoluted and opaque means of capital allocation than the rest of the "first world", which although criticized as sclerotic by the west when times were better, seems to be holding up rather well at the moment. The economist actually had an interesting article on this last week.
The actual marginal cost per unit of using blue-ray over dvd is tied to the difference of the costs of producing diodes for for both. That you can now buy a blue-ray drive (set top boxes are incomparable as the blue-ray standard requires 256mb and significant cpu horsepower which dvd did not) off of newegg for $80 tells me that those differences have narrowed significantly. And these prices are going to appear more drastic than they are as the degree of "commoditization" as dvd drive manufacturing is going to be a much lower margin business at this point. So at this point blueray at least is going to mostly be a sunk cost.
Guessing the size of any potential pricecut however, is something of a futile exercise unless someone here has access to some price discovery studies Sony has no doubt done and will do. There was one recent study in which it was discovered that people were willing to spend more money at a place called Cafe17 than Cafe97. The only way to figure these things out is empirically.
Currency fluctuations and some of the more nuanced aspects of competitive game theory are also in play here. But predicting the first is harder than predicting the weather and the second is made extremely complicated by the fact that firms cannot easily raise prices.
