| NJ5 said: So for example if Sony cut the price by $50 and the system costs $500 to make, boosting sales from 200k to 250k, they'll lose an additional $17.5 million per week or almost a billion dollars per year due to cutting the price. If the price cut is $100 and it boosts sales from 200k to 300k the cost is $40 million per week or $2 billion a year. Of course, added software sales will take part of this impact away, but those numbers are eye opening. There are also cost reductions during the year, but holiday sales boosts also take at least part of those savings away.
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My analysis is pretty simplistic, and doesn't take into account fixed expenses (like marketing costs) and was done on a per-system basis so that people could understand just how much software would need to be sold for each company to break even ...
Now, the important thing for people to get out of this is that the difference in sales "boost" has to be great enough of the manufacturing cost low enough in order to justify a price reduction. If you're only dealing with a 25% boost from a price reduction of $50, or a 50% boost from a price reduction of $100, it is difficult to justify until the console costs less to manufacture than your new price.
