Sony did it during the Holiday season, although it was just a temporary price cut. 

You could find it for $169.

Where i live it cost's 249$ 169$ seems like a huge dive, if so how will they profit from it unless they make a new design

Nope, there are 2 things that are hurting the vita:

1.) Smartphones
2.) Tablets

This.

According to the last post about smartphones in Vgcharts, Smartphones sales are growing by more than 150% over the previous year, while portable market is decresing constantly.

3DS keep selling because of 1st party games. The reason why PSP sold well is because it was a powerfull devise then with WIFI connection, movies, music, and more likely a portable PS2.

The vita on the other hand, doesn't have what it takes to attract more buyers.. Price, games aren't a good excuse for not selling well I guess.

That's why the price cut was only temporary.  Sony is not willing to lose money on every unit sold like they did with PS3.

The only way Vita reach the $169 pricepoint is with a redesing.

Nope. Has their support of PS2 damaged the sales of PS3?

don't forget Vita is able to play PSP games, so i dont see why Sony stopping PSP market since there are still many developers not investing on Vita yet...
most important is is selling each PSP let Sony earn more profit than selling each Vita...
PSP are just for users who still can't afford to pay for Vita but still had a choice to play certain good games for the time being, never worry Vita will slowly totally take over PSP market when production cost gets cheaper, just give Vita some times... ^^

They should release a Ps2 emulator for Vita, just like the PSP had a Ps1 emulator. It wouldn't do wonders but it would help imo.

In Japan, definitely. PSP owners aren't upgrading because their system is still getting a good flow of games, while new buyers prefer a cheaper system with ongoing support to a more expensive new one.

Vita is not able to play PSP games. You can't use PSP games you already bought with the Vita (no UMD support and no way to create ISO's and transfer them), instead you have to buy them all over again. The Wii can play GCN games, the DS can play GBA games and the 3DS can play DS games. Vita CAN'T play PSP games. 

@topic

Seeing how the PSP still manages 2/3 of Vita sales it certainly seems so. Killing of PSP is no option though, as it still makes some money.