Nintendo could afford to invest in a really souped up high tech console, but they've never been a company who has felt comfortable about operating on a loss. This is why they are reluctant to drop the price on the Wii U. Yes, selling it at a lower price will increase sales but not enough to make a real difference at this point. The only reason the 3DS received such a huge price drop was because that was the core of Nintendo's business and the system was still brand new. They could not afford to have that fail.
I also think Nintendo sees that competing in an arms race is pointless because it did nothing for them with the N64 and GameCube. I think it's time that they perhaps found a middle ground. They shouldn't compete with Sony and Microsoft in an arms race. At the same time, they shouldn't use hardware that is too dated. What they should do is talk to publishers and developers and get a basic idea of the type of hardware they want to work on in the future and try to put out something that is somewhat powerful. Think of it as comparing Dreamcast to the other 6th gen systems. That way, Nintendo could still maintain a competitive advantage with pricing while still making a profit and having something that third parties can still put their games on.
With handhelds, Nintendo figured out the winning formula to a successful handheld system a long time ago. They learned from the beginning that a handheld could never capture that living room experience of a console and so they shouldn't even try. Handhelds should be their own thing. Sony still hasn't learned this. Ever since they entered the handheld market, Sony has tried to provide the console experience on a handheld and because of that, they could never compete with Nintendo in a pricing war and could never make Nintendo's profits fro their handheld system. Not to mention, the consequences of trying to capture the console experience on a handheld is that everything is going appear to be watered down and cheap. Because Nintendo presented the handheld as being radically different, you never felt like you were playing a watered down console...except when you played ports of console games. Super Mario 64 just isn't the same without that analog stick.
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