The console costs a great deal more than it's competitors, came out a year later into the console market, and we are experiencing a staggering economic crunch, this still hasn't stopped the PS3 from selling very well, better than most would expect from a console that costs that much in comparison to a much cheaper competitor.
So, should Sony drop the price of the PS3 would it cause total PS3 sales to overtake the Xbox 360 in the long run? yes, here's why:
The PS3 is the only console to launch at a rather arrogant $600 price tag, that is still alive and kicking, it's a fact Sony's PlayStation brand commands respect, it's a brand thing and as far as gaming brands go, Nintendo and Sony are the foremost paramount, Microsoft hasn't achieved that level of brand awareness. yet.
Secondly, the PS3 is selling with a much cheaper console, what makes people still go out of their way to buy a PS3? when they could get another console that does the same things(plays games) for $200 less? The fact that the PS3 is selling this good, leads me to believe it would only improve with a cheaper price tag.
Online is FREE, not having to inquire further costs is a major reason for the PS3's "success", imagine paying for the console and still having to pay some sort of annual subscription for PSN...the thought of that makes me shiver. If Sony reduce the cost of the PS3 then we will see even greater numbers rush to buy it.
Online is free for PS3, but when more peoples' friends are already on Xbox Live (A Huge Factor), and Xbox Live having a reputation for having the better online, not to mention Xbox Live is less than $5 a month, having free online will not help ps3 has much as you think.
Another thing people forget is the PS3 is actually gaining more ground each passing day, Sony is selling more consoles each year than Microsoft is, although Microsoft's lead remains strong mainly due to their fantastic holiday sales. Notwithstanding I think that if Sony does a price slash for their PS3 system, their sales will go beyond what the Xbox 360 has achieved so far, people who want to buy it obviously aren't because of the price...people who want to buy Xbox 360's already have.
There are still tens of millions of gamers that have not bought a PS3 or a 360, when they upgrade they will most likely go for the cheaper xbox 360, that is just reality.