Three things everyone is this thread has forgotten.
1. Disposable income thanks to Microsoft deferring their price cuts they have more disposable income. Sony cut two hundred dollars from their console in less then a year much of it being applied to unsold models that were made at a higher cost. Further more most everyone thinks that Sony was taking a huge up front loss. I would say it is doubtful that Sony has made any money off of their console yet, and the more they lose in the short term the less likely it is they will ever see any profits. Microsoft can win the price war, and if they decide to lose money on their console. Sony will take the larger whack by far.
2. The PS2 can defer costs for Sony only so long as it has a serious price advantage over the next generation consoles. A price war only reduces that longevity. The faster Microsoft and Sony slice the costs on their next generation consoles the shorter the lifespan of the PS2 will become. The PS2 is where Sony is profitable in the console department.
3. The price has been a major factor in this console generation. We have seen how effective price cuts have or have not been. Microsoft is probably correct in their assessment. They are now reaching prime real estate when it comes to next generation console purchases. They are basically moving into the region where most gamers can afford to buy into this generation.
Sony isn't in a prime position to price war Microsoft. They need more time to reduce their production costs, and more importantly they need to be in a position to generate some profit. Especially to offset their initial losses. The faster the prices are driven down the sooner their cheap console with a real profit margin will be forced off of store shelves. Finally if they price war Microsoft there is no reason for Microsoft to not answer again as an attempt to bleed Sony white. Microsoft might be in prime real estate, but if you price war them and they actually make their console cheap. Then you have a real problem on your hand. The choice to one becomes a easy one.
Microsoft is in a prime position Sony is out of position, and will be out of position for some time. Microsoft really controls the context in this situation. Your deluded if you think Sony can continue to throw money away at a prodigious rate such as they have in the past. Microsoft can win either end of the spectrum in this situation if Sony tries to match they dig themselves deeper into debt on the machine. Sony doesn't match and Microsoft has a real sales advantage. Regardless Sony has no possibility of defeating Nintendo, and they have to deal with them next generation.
Basically fiscally speaking this price cut by Microsoft is most likely a stand alone event unless Sony gets supremely desperate, and even then there is nothing to stop Microsoft from increasing the pressure. To be plain if Sony suddenly produces a third price cut. Microsoft could do the same at a significantly lower loss to themselves.
