Yes it does compete directly. Business analysts who focus on the console market lump the Wii in there with the X360 and PS3. I have never seen a statistic with only the consoles from Sony en Microsoft.
To the media it's the same story. When reporting on the videogame-market and sales for instance they will always compare the main three boxes.
You see it here aswell. If the Wii wasn't directly competing, VGchartz would have a whole different section for the Wii.
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