Yes, it is against standard wisdom to cut your income when you need it most. However, standard wisdom also dictates that when your competitor drop price by a large margin, you have to follow suite. Otherwise risk the market forget your product. If you look at the airlines industry, you will see that the airlines do just about any thing to keep up with competitors moves. Many of them price cut (fares) themseves into bankcruptcies after 9/11. In the case of Sony, when MS cut, Sony should have responded with their own cut within three months.
If they let MS run away with this perceived value gap too long, all kinds of complications will show up. The install base gap would blow pass 10 millions by end March 09. Developers would lose faith in the system and start canceling projects or turn out even more half baked ports. All this would translate into more value to 360 in consumer mind. Soon the snow ball would be too large to stop. Sony with all their problems is not any where near BK yet. They are just not a multi billion profit making machine lately.
Even MS themselves absolutely expected Sony to respond soon.
