If these rumors are true, Sony is entering a very dangerous game against a company with infinitely deeper pockets and more wiggle room to reduce hardware costs.
This could work out in Sony's favor if MS stands pat, but if MS decides to play hardball and eat $1b to knock Sony out of the contest, we could see a $200/$279/$350 360 price structure, which would absolutely devastate Sony this holiday season when coupled with Halo 3, Mass Effect, Lost Odyssey, and others.
Sony just doesn't have the capital to get into this kind of longterm war with Microsoft, especially if they set themselves up to lose money for 5-6 years on the PS3 (which would be the case if they dropped to $400 in 07, $300-350 in 08, etc). Ramping up the price war this quickly basically eliminates any chance of SCE turning a profit this entire generation.
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