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1) Battery life
2) "hard core" gamers (PSP's target) prefer consoles. Casual gamers prefer handhelds
3) This is the portable market, the only thing keeping Nintendo alive during the PS1/2 era. Sony aiming to take the portable market was not the best plan, the whole 'backing an animal into a corner' thing. Sony could have done it, if they actually really put effort into it and focused on it. Sony didn't do this though for an extended period of time, it was never Sony's first priority. Meanwhile, Nintendo put in everything they had and continued to do so, hence the sheer number of 1st and 3rd party games.