Sony has more power to drop the price than microsoft. It is really simple in my opinion. First of all microsoft are already in the red because of xbox, while I think it is fair to assume sony is in the black for ps2.
secondly sony is not smaller than microsoft, so it can tolerate a few billion dollars in red if the cost is high enough, and while video games might not justify that cost, I am pretty sure that sony don't want to let microsoft get the central home enterntainment media market. That is the way I see it, it is just a fight over our living rooms between sony and microsoft. microsoft already has our bedrooms (studying room) with computers, they also want our living room. Sony is the only contender who with blu-ray and ... is trying to stop the microsoft supremecy.
That being said, I don't think we will be seeing any price drops soon, because both parties know that a price drop will only make the other counter, and both will go more into red without any good reason.
