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It's a smart move on Sony's part to drop the price. Everyone knows that the ps3 is faltering in comparison to the other systems; teenage kids just don't have 400 dollars to throw at a gaming system.

With the 100 dollar price cut, they may make less on the hardware sales, but they'll gain a lot from software and additional peripherals. (for every ps3 that gets sold, there is a good chance a few things will be bought from the store, a few games, maybe a controller, etc). So that 100 dollars is easily rectified by selling 2 games or a few controllers. More customers = more sales= more money.