There are so many fallacies related to any argument surrounding the Xbox 360s sales its so insane, but i'll wade into a few of them.
1. Theres no such thing as a mass market price. Its all related to supply costs and demand, but theres an ideal price range for different consoles where price cuts yield the greatest response in terms of increasing total unit sales. As the recession deepens this price point is lower as the overall demand for consoles drops as we have seen overall console sales start to decline year over year. Furthermore during a recession people become more sensitive to price and we have seen the average sale price of the Xbox 360 begin to decline during the year in America. So from this, a price cut will yield good results because the ideal price of $199 for the Arcade last year isn't so ideal anymore, however $150 or $179 might be.
2. The reason why the Xbox 360 3 SKU system of Arcade at $199, Premium at $299 and Elite at $399 is price point and feature discrimination towards consumers. There are people who will pay no more than $199 for a console or don't need a HDD and they would be fine with the Arcade. On the other extreme there are people who are willing and able to pay $399 for an Elite and if this SKU wasn't available Microsoft would miss out on the extra margin and revenue on these units. The price difference between the SKUs are not fixed and Microsoft can adjust the features and prices to suit different areas of the market. For example they have the option of selling the base unit for $179 and the Premium for $250 or they could offer Blu Ray in the Elite and position the console at the higher price point of $350 against the PS3. They have more open options, which makes it difficult to predict how they will respond to the recession and Sony's actions this year.
3. The Xbox 360s price cuts are nowhere near as quick as the expected PS3 cut. The PS3 has only been out for 2 years in the E.U and its shed 33% of its cost there and it will hit 50% in less than 3 years if the price rumours are true. This is far faster than any price cut we could see from Microsoft this year and if there is a price cut perception effect existing, it will hurt Sony far more than Microsoft as they are the bigger price cutters.
Tease.
