The Wii isnt competing with next gen consoles, its competing with last gen

[HappySqurriel]

There are several different ways of classifying competition, here is my non-exhaustive list:

• Competition for developers: All living systems are in direct competition for developer resources; although you can have multiplatform games, it is fair to say that a person who is working on a Wii game can not be working on a PS3 or XBox 360 game at the same time therefore the Wii is in direct competition with the PS3 and XBox 360.
• Competition for consumers: People will (typically) only buy one product within a certain class (home consoles for example) within a reasonable timeframe; this means that someone who buys a Wii today is probably not going to buy a PS3 or XBox 360 for several years, and thus the Wii is in direct competition with the PS3 and XBox 360.
• Competition for mindshare: Most people tend to focus on one product in a given market; they pay attention to the iPod not the Zune as an example. What this means is that the attention being paid to the Wii effectively prevents attention from being paid towards the PS3 or XBox 360, and thus the Wii is in direct competition with the PS3 and XBox 360.
• Competition for retail space: it is amazingly difficult to sell games and accessories in a store if the store doesn't devote shelf space towards those games and accessories. The more space that is devoted to the Wii the less space that can be devoted towards the PS3 and XBox 360, and thus the Wii is in direct competition with the PS3 and XBox 360.

The only area where it can be argued that the Wii is not in direct competition with the PS3 and XBox 360 is in the technical performance arguments that show up on webforums and have no impact on sales or third party support.