Sony and Microsoft can't afford to lose billions on their consoles this time. Seeing both Xbox 3 and PS4 retail for $399 would make a lot of sense in my opinion - with Microsoft about breaking even and Sony making a small loss probably (including Kinect and Move).
In the end it comes down to this: Will our industry grow or not? If all 3 consoles can receiver proper ports of 3rd party games everyone wins. We get more games for our consoles and developers can afford to make higher budget games and have a larger install base to sell them on.
Honestly I would much rather have 3 cheaper consoles getting great support than a splitted user base like this gen. The gaming industry could thrive and grow on an install base of probably 250 million consoles and motion gaming taking really off with all of the big 3 fully supporting it. And the graphical leap will easily be big enough over this gen. It simply won't be overshooting the market this time.
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