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The Wii is in direct competition with the 360 and PS3 and here's why:

The monsterously huge majority of the consumer market only buy 1 video game system per generation. That means that for 90%+ of households who had a PS2 or Xbox last gen and have now bought a Wii will *never* buy a PS3 or 360.

And I'm pretty sure that any product that directly steals sales from another product is in direct competition.