I don't think MS will react this year. They have the better library and just cut the price. I think they will go in Feb-March down and then will most likely hit Sony hard with the new price. $200/250/300 would take some of the attention of the big games coming for the PS3 away. And 200$ for a console with GTA could be a sweet place, if GTA doesn't need a HDD. Don't see how Sony could respond with another drop. Not in Q1, Q3 the earliest next year.
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