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Well,Sony can afford a price cut reducing the manufacturing costs with a Slim Model(what's will announced at TGS for sure,), MS can do the same, release a slim 360 and just repass the shorter costs to consumers.

One thing no one here remembers is, what about retailes profit? If Sony or Ms drop the price 50 $ retailers should buy it 50$ cheaper and have the same profit margin they had with higher prices? They could drop the price just by suggesting an lower price and selling consoles for the same price for the stores, sure stores won't like it, though.