Everybody is saying that the PS3 needs a price cut and when that happens sales will begin to take off. This may not be the case, because a PS3 price cut would more than likely stiffen their competition. This is how I see it.

PS3 - $599-$100 = $499

360 - $399-$100 = $299

Wii - $249-$100 = $149

When you look at these price cuts it seems to me to give the 360 and Wii a better appeal to the mass market and a better appeal overall than before the cuts. Giving those two more of an advantage with a price cut.

Who has the advantages of being able to cut the price? Here are three simple factors that allow systems to cut their price, and they all tie into one another, time, mass production, and high tech components. Now each system has one of these advantages over the other two.

Time – The longer you are on the market the easier it is to cut costs. Advantage 360.

Mass production – The more systems you are producing the easier it is to become more efficient and buy larger amounts of parts reducing the cost. Advantage Wii. Currently the Wii is selling at a faster pace, causing production to increase. The other two are decreasing or maintaining production, and can’t meet projected targets. M$ only shipped 500,000 last quarter!

High tech components – The newer and more advanced your components are the easier it will be to reduce costs. Advantage PS3. Blue Ray and Cell.

There are countless other factors, but these ones have big impacts.

Now people say that the PS3 has the most room to cut prices. To get to $99 PS3 would cut $500 (will never happen), 360 would cut $300 (most likely wont happen), and Wii would cut only $150 (could happen). Now I know that these systems will probably never be the same prices but this is just to give an example of how much room they have available to cut.

The PS3 is worst position to cut prices, losing about $240 per system sold depending on whom you listen to.

The 360 is said to be making about $70 per unit, or getting close to break even and turning a profit. This again depends on whom you listen to.

Now the Wii is in the best position they are currently making money per unit sold.

So who would want to cut the price? Not any of them currently. Sony doesn’t want to lose any more money. M$ would finally like to stop losing money on xbox after over five years. Nintendo needs to make money because video games are their whole business they have nothing to offset it like M$ and Sony do.

Who could cut prices the easiest? Nintendo could drop their price all the way to $99 and still be losing about half of what Sony is losing on PS3, and they could afford it. They have about 6 billion in cash sitting around and pretty much zero debt, but this would be a very bad business move. So it will not happen anytime soon, and why would they want to? They can’t even make them fast enough to sell at $249.

M$ could cut as much as they wanted, their money is pretty much endless. But no company wants to loose money if they can avoid it. They are just playing the pricing game with Sony, and if Sony cuts M$ will probably match it. Or if they wanted to increase the pressure on Sony they could cut first. But I suspect they don’t want Nintendo to follow so will probably stay where they are at. With just releasing the Elite at $479 this gives us the idea that they don’t have any plans on cutting prices anytime soon.

Sony is different, they don’t have M$’s cash reserves, and they have a lot of debt and are already billions in the whole on the PS3. Yes Sony is a huge company with massive cash flow, but the PS3 is currently hurting them. I know as a whole the company is still making money.

So to me it seems like a price cut hurts Sony the most and would cause the competition to do the same cut. Making it just as hard to sell against the other two as it is today. I am guessing we will have no price cuts until next year. It really makes no sense for any of them to cut prices now. If it happens it will be a move of desperation. Either by Sony to move more systems (won’t be affective), or by M$ to kick Sony while they are down.

Why not just throw out the universal assumptions of supply and demand?

Sony have to cut the price soon, or people will not buy it. If Sony don't cut the price, why do think that their competitors will not either. If Sony gets a price drop, good marketing and a couple of new AAA titles before the 360 or Wii gets extra momentum going into the holiday season, then they could dominate that period.

I think, in a general sense, his question has some merit ...

If you assume a price reduction of $100 for the PS3 and XBox 360 priemium, $80 for the XBox 360 Elite, and $50 for the XBox 360 core and Wii you end up with the following prices:

Wii $200
XBox 360 - Core $250
XBox 360 - Priemium $300
XBox 360 - Elite $400
PS3 - $500

The number of potential customers who are willing to spend $500 on a PS3 but not $600 is (probably) pretty small so the PS3 may not get as big of a sales boost from a price drop as their competition.

I don't see MS cutting the price this year no matter what Sony does. They just released the Elite at $480, so how could they cut the price without making people angry? They could just cut the price of the premium to $300, but then why would people buy the Elite? Sony on the other hand is in a potentially critical situation where they need sales to pickup. Component prices are coming down for them pretty quickly, so they might be able to cut the price by Christmas.

As for the Wii, no way they cut the price of that. What's the point if they're already selling every single one.

Sony wouldn't really benefit much from a price cut IMO. What happens if they cut prices? Sony - "Okay, everyone, the Playstation 3 is now available everywhere for $499 USD." ...three minutes later... Microsoft - "Okay, everyone, the 360 Pro is now available for $299 and the Elite is now $399. Oh, BTW, we'd like to thank our friends at Sony for showing their hand like this. Now they're losing even MORE money on each console while we're virtually breaking even on ours. Cheers, mates." Who wins that war? Well, the consumers sure do, but MS would be laughing their ass off at Sony for walking into such an obvious trap.

Yeah, but look at the differential in sales made by a $200 difference between the 360 and the PS3.

First a $100 price cut will only happen for Sony.  I see Microsoft giving a $50 cut and Nintendo doing nothing (they can't even meet demand now).  Yes, a price cut by Microsoft would take away a few sales, but the PS3 just needs to reach a mass market price before it will take off.

I could see the 360 recieving a price cut to fend off the PS3 (as for whether we'll see one either way this holiday season, I do not know), but there's no way the Wii will be cutting their price anytime soon. Not everything is looked at in terms of "the videogame wars". Companies that make consoles are more concerned with how their consoles are doing overall, not just in terms of compared to the competition.

And no a price cut wouldn't hurt the PS3. It would help it quite muchly 

i believe we will see a price drop soon due to poor sales, the loss of the 20 gig model, and that Sony wants more momentum going into the holidays. But honestly i dont see the urgency because the ps3 isnt selling badly unless you compare it to the wii. But the problems of supply when the ps2 launched mean that the 5 month period for both consoles are relatively similar.