No, people are not buying expensive consoles anymore, there are too many gadgets to spend on in our day and age, and we can't afford everything. 350$ to 400$ is a reasonable price.

this and Aeon Flux....such horrible movies

Many people think of smartphone/tablet as devices they use for productivity, especially a smartphone. If we are going to make a comparison, then really owning a cell phone with data over 8 years with 4 upgrades (at $199) each = 8 years x 12 months x $50-60 a month + $199 x 3 upgrades = $5,400 - $6,360 over the same time it costs to purchase a PS4. Why is it people are willing to pay $600-720 a year to own a smartphone? I sure don't get a lot more fun / satisfaction out of owning a smartphone over a game console but I know it'll cost me 10-15x more to own a cell phone service over 8 years than buying a PS4 for $500. That's because people don't view these 2 items as competing with each other. The cell phone is almost an essential item for many, while a game console is a discretionary good. 

I don't think the comparison makes any sense, not to mention in many 3rd world countries owning a cell phone is a status / fashion symbol, which means people overpay for a high-end cell phone. In many places around the world, you can't afford a nice car, a big house, etc. but you can afford nice clothes and phones if you save up long enough. My friend works in Brazil and he says it's not unusual for people to save 2-3 months of their salary to get an iPhone. It's just how they view phones over there. 

On the tablet front, it's only a matter of time before we start seeing a good 7 inch $99-149 tablet:

http://techreport.com/news/24090/129-149-nexus-7-may-show-up-next-quarter

Looking at only the most high-end tablets misses the rest of the tablet market. If PS4 is $449-499 and Wii U falls to $249, a lot of people might think hmmm I really wanted a tablet but I also want a gaming console. I can get Wii U + 2013 Nexus 7 or a PS4 only. OR I can get a Wii U with 4-5 'free' games for the price of a PS4. These things start to matter. I could see how they might pull of a $499 price if it comes with some 2-year contract like Xbox 360 where you pay a certain fee for PSN+. Let's say if the console is $499 standalone, I could see them selling it for $499 with 2 years of PSN+ included, which would make it seem like a $399 console. It could be that Sony offering 2 years of PSN+ would be worthwhile as once the consumer is hooked on the service's features (Instant monthly games collection etc.), they would just renew for the remainder of their PS4 ownership. Also, once they download a lot of free games with the service, they won't want to lose them, enticing them even more to renew once the contract is up. 

That would be way to expensive.

Another thing to consider is the PS3 has been selling at $299 and $250 for quite some time and even before that at a much higher price and it's doing 10 million + numbers yearly. It was even the highest selling console last year and it was the most expensive. People could be pretty use to these high prices, especially now with the Wii U.

cell phone=necessity for the most part

$200 smartphone=unnessessary.

but nowadays cell phone = smartphone (no matter the costs, it's spread widely).