If the PS3 drops to $300 Microsoft should:

[GenuineClamBaker]

I think before we look at what Microsoft is going to do, we need to look at Sony. Does a price cut actually make sense if it's just going to make them go even deeper into the red? No, it doesn't, which is why I don't think we will see a price cut until around September/October. Whether it's 50$ or 100$ is something I can't say because I don't really know how much each PS3 will cost Sony by that time. But judging by what they have planned to help reduce the price, I'm pretty sure they will be able to do a 100$ price cut while still breaking even on every PS3 sold. How will they do this? The two biggest reasons will be 45mm Cell and 65mm GPU, which should help lower the cost quite a bit. One thing most people seem to be overlooking is that the PS3 uses alot more bleeding edge technology than the 360 does so therefore the costs of its components will drop alot faster. Like Bluray, for example. Bluray is dropping very quickly whereas the price of making a DVD drive is staying roughly the same. Another way that Sony should be able to reduce the cost is if the exchange rates stabilize more, which is something that analysts are predicting will happen this year. You have to remember, Sony was a able to reduce the cost of the PS3 by more than half in only 2 years, so assuming right now that it costs them 450$ right now like iSupply said then a drop in cost of 150$-200$ is not as unrealistic as it may sound.
I'm surprised it hasn't been mentioned so far, but both God of War III and Gran Turismo 5 are expected to be released by 2010 at the latest. These series have alot of fans, especially Gran Turismo, and I think they will definetly move hardware. Gran Turismo is after all Sony's best selling franchise and I'm sure there are many gamers waiting for its release or a more affordable price point.
But now to the actual question the OP has asked. What should Microsoft do to counteract this price drop? To be honest, I don't think any further price drops will have the same affect as the one last Fall did. Why? Because under 200$ seems to be the sweet spot for electronics. Look at the iPod. It was successful before, but once it dropped under 200$ its sales increased tremendously. What MS needs to do is eliminate all the barriers that are stopping people from buying it now. The biggest of them still being RROD. I know, it's apparently been fixed, but the average consumer doesn't know that and that definetly is still hurting them. MS needs to explain to the average consumer that the problem has been fixed, which is something they should of done along time ago. It may actually be too late though, because bad hardware reliability is something that can seriously tarnish a brand. Another thing MS needs to do is make it a more casual friendly console, something they have been trying but I wouldn't say they have been successful at. The 360 is still regarded as the shooter console and many parents don't like the idea of their kids owning a system with that reputation instead of something like the Wii. What the 360 needs is its own LittleBigPlanet. I don't mean a LBP necessarily, just a game that appeals to young and old gamers alike and has a considerable amount of praise around it. Banjo or Viva Pinata are not enough. MS needs a strong casual friendly franchise that will attract younger gamers to it. And finally, MS needs to bundle. Because if Sony is smart they will bundle a 300$ PS3 with LittleBigPlanet and this I think will attract a fair share of casual gamers. So the best thing MS could do to combat that is have a Pro selling at 250$ (I don't think MS can afford to sell a Pro for 200$) and bundle it with a crateload of games. I'm talking 5 games atleast, something like Viva Pinata, Banjo, maybe a racing game, and some Live games. This would seem like a very good deal to the consumer and could possibly match a Ps3 price cut, the only question is, could MS afford to do it?