According to this philosophy, all consoles would get price cuts all the time. Heck, why not even pay people to get consoles from you.
The mistake is of course in not taking into account that only the software sales resulting directly from the price cut should be taken into account in a cost/benefit analysis.
Tons of people will buy a PS3 no matter whether it gets a price cut or not. Let's assume 10 million for the sake of argument. The 3 additional million who buy a PS3 because of a price cut are not going to generate $50 * 13 million = $650 million of software revenue to compensate for the price cut amount (much less the amount they'd need to spend for Sony to break even).
If that didn't make sense, think again. The cost of a price cut is lost revenue from all the buyers of your console, while the benefit only comes from software sales to those who bought the console due to the price cut. That's why price cuts aren't nearly as common as a more naive argument would suggest.
My Mario Kart Wii friend code: 2707-1866-0957
