Im not an executive at either company but with all of the reports floating around about how the CELL and blu-ray costs have come down i think one could make a valid argument stating that if MS drops the price sony can respond.

Sony is a CE manufacturer. It's their area of expertise. It's the same reason that XBL is so advanced compared to the PSN. MS = software, Sony = hardware.

The fact that most of Sony's manufacturing is done in-house (Blu-Ray drives, etc.) whereas MS's manufacturer is almost exclusively 3rd party (BenQ disc drives, etc.) helps to keep costs down as well. This was a major problem that MS had with the Xbox. They could never drop the price siginificantly lower than it was at launch, so they were losing money on every one that they sold throughout all 4-5 years that it was on the market. It's also the reason that they stopped production immediately upon launching the 360.

Also, because Sony uses more advanced technology in the ps3, their expenses have more room to fall.  For example, DVD drives can't get much cheaper than they already are, but Blu-Ray drive costs have been dropping like made as mass production ramps up. It's estimated that Sony already cut over $400 off of the initial manufacturing costs of the ps3 because of things like this.

 Oh how clever of you to notice that a group of people with a wide variety of opinions usually directly at odds with each other have been proven wrong before.  But I'm sure that has nothing to do with the fact that in almost every topic we get dissenting opinions which logically implies that someone is going to be wrong.  

Any other clever observations for us? 

There's almost nothing Microsoft can do to salvage this generation. They can't compete on quality, they have no advantage in games (Sony's big exclusives are coming on strong), they can't compete on media (no built-in next-gen media), they can't compete on storage (you can pop a new hard drive into Sony's machine, no problem), they can't compete on fun and family-friendly (the Wii takes the cake). Their price advantage is chimerical - Sony is making so much money in EU markets, it could afford a $50 price cut without breaking a sweat.

I seriously have to question why Microsoft is in this industry. It may be time for Samsung or some up-and-coming Taiwanese company to get into the console biz, and provide some honest competition for Sony.

Absolutely agree with that. On top of all the reports of shrinking Cell and RSX and reducing costs AFTER they dropped the price the first time.

Sony doesn't have a single AAA exclusive, MS has 5. 

MS has one of the leading high-definition download services, Sony has a price-increasing format that is yet to prove it can survive against DVD and downloads long enough to become mass market.

Joe Six Pack isn't aware he can switch harddrives, Microsoft has the largest hardrive built into the console.

Microsoft beats any other console on fun, but I concede is has far fewer g rated games than the Wii.

Sony is making plenty of money off inflated EU hardware prices (hardly a thing on software), but MS is making plenty of money off every PC in existence.  They could afford a $150 price drop without breaking a sweat, they just don't want to.

By honest competition do you mean beating the PS3 by more than the 6 and a half million the Xbox 360 is, or more than the 11 million the Wii is? 

Everything Sony has done from launch with respect to hardware, has been to reduce costs. While MS has done some things, they have also done the following:

• Paid for 16-30% replacement units.
• Added HDMI ports
• Improved cooling

All those things cost money. Also, the components in the 360 have not gone down in manufacturing costs as fast as the ones in the PS3. The BR is now cheaper, the Cell is cheaper, and soon it will again be cheaper. They removed PS2 Hardware, they can go with a cheaper cooling system because of the hardware removed. They removed USB ports, and because the system requires less power, the components to power it cost less.

MS still has to worry about failure rates. If they have it at 10% now, then you have to tack on 10% more cost for everyone sold.

Also, every price cut was Sony idea to stimulate sales, not in reaction to anything MS did with respect to a sales price. In fact when MS lowered the price on the 360, it was in response to Sony. It's my belief that Sony wanted to low end PS3 to cost somewhere in the $299 range, and I feel Sony will probably keep aggressively dropping the price until they can reach that goal. MS played it's hand early, and forced Sony to bring a product to market far sooner then they would have wanted, thus the price was way to high. All these cuts have been to steadily correct that, not because MS forced them to do anything.

I think when another price drop comes, it again will be Sony driving it. I don't think the public knows for a fact what each 360 cost MS, but I am sure it's a lot higher then what MS projected it to be at this point when they launched the 360. I have no idea how MS will handle a price drop from Sony. Now that they have started turning a profit, I doubt they want to go back into the red.

YES, microsoft should just give up now! go Home! close the shop! etc.

Wouldn't that be great for sony? Haha.

 Can't argue with that.  I definitely agree here.

 Well, they just don't have enough money to buy all game developers.