But in regards to the OP. Yes, the industry can handle more powerful systems.
Firstly, its much easier for devs to produce good looking games, and at a cheaper development cost too. The price hike starts coming when people start trying to push next gen tech and release title which look more then just current gen games running on high PC settings. But that will be left to the bigger companies like square, Ubi, EA etc. Because of the diminishing returns in graphics, people will be very content with even the worst looking next gen title, giving lessor devs a new lease of life. producing the same amount of assets they do now, but with new graphical tools to play with and make their games look shiny whilst running at 60fps/1080p. Also the advances in Digital content will continue to push indie devs foward.
In regard to console prices, $400-$500 is a reasonable price. The adoption rate next gen will be a lot stronger then it was with the 360/ps3 because the developers are readying their big guns for launch year. We already know of Watchdogs, starwars1313, Witcher 3, Dragon Age 3, Battlefield 4, Destiny... This line up already shits all over what was available for the 360 in is 1st year and the ps3 in its 1st year.
