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Shadow1980 said:
$500 isn't worth as much now as it was at the start of last generation. Adjusted for inflation, the 20GB PS3's launch price was $615, and the 20GB 360's was just over $500.

I think a $500 system released in 2020 or 2021 would work if Sony found a way to justify it, and they could do so by making the PS5 as powerful as possible for the price point (yay, alliteration). After 14-15 years of inflation, $500 just isn't outrageous for a console as it once was. Now, a $500 PS5 may have lower initial sales and be a slower burn like the 360 & PS3 were, but that also means that through strategic placement of price cuts Sony could extend the generation longer, maybe to where the PS6 won't need to be released until 2028 at the absolute earliest.

Now, MS could undercut Sony with a $400 Xbox 4, but such a system will either A) come at a loss if it matches the PS5's specs, or B) it will be underpowered compared to the PS5, perhaps to a non-trivial degree. This could have an effect. The 360 was $100 less expensive than the PS3 at launch (counting just the 20GB SKUs), but the two were roughly on par in terms of capabilities as a gaming system, with the PS3's only real advantage being its ability to play Blu-ray movies

A slightly slower launch for PS5 will be fine, they just need to make sure the price gets down to $400 reasonably soon. Assuming another Nov launch, lets say a full year at $500, then a drop to $400 for BF and $429 or $450 bundles for the rest of the holiday, with a permanent drop back down to $400 early in the new year. This should allow them to recover their costs even quicker without losing much pace with PS4.

XB could undercut PS, but they have to be careful about this. If PS5 is worth $500 and costs $500, and 'XB2' is worth $500 but costs $400, then if PS drops the price by $50 to $100, XB should be persuaded to drop the price by the same amount to keep their lower price advantage. This means XB has to be willing to take a $200 loss, or potentially lose sales to PS5.

If PS5 is worth $500 and costs $500, and 'XB2' is worth $400 and costs $400, then PS can drop the price by $50 or $100, which should force XB to drop the price by the same amount. XB has to be willing to take $100 loss if this happens, or potentially end up losing sales to PS5. The same could be said if 'XB2' is $500 and the PS5 is $400. This would actually seem to be a more likely scenario since XB requires a larger performance jump than PS does compared to this gen.