"would have to sell for 20 bucks less than the version on the competitor"
Nope. They could do that and still make the same profit.... but they certainly wouldn't have to. They'd probably just continue selling at the same price and enjoy the extra profit they make instead of passing the savings onto consumers. That's what businesses usually do. I mean, just look at Steam! I think they charge 30%, yet despite console games having to pay console royalties and a % to retailers for physical copies too (which probably adds up to more than Steam alone charge), new games are often listed at a higher price on Steam than they are on console.
I guess you are also not considering that this hypotetic scenario the publisher won't be able to sell without that price difference. Because they need authorization from the platform holder for all games launched and they would receive the same profit per HW so it isn't a draconian measure.
Cheaper console. An affordable entry cost is super important. The problem with cheaper games, are those who aren't buying 10-12 games. For all the buyers who are only going to get 5 or 6 games over the lifetime of the console, if that, they aren't going to buy the more expensive unit on the shelf, even if they know the games are cheaper than the competitions. Many won't know that though.
I don't know if most people would know how many games they will buy on a gen, but they will know that one HW is more expensive with cheaper games than the other.
This has been suggested forever and 3DO tried something similar without any success. Not to say somebody can't crack it but it'll be hard to sell a $600 dollar console that is no better than a $400 one, even if there is a slight difference in game prices. It'd save me money since I buy a lot of games but the average consumer only buys about 10 games for PS4/Xbox, they wouldn't really see a saving overall, plus sales already regularly let people get a game for less.
The idea would be that regular folk would end up paying about the same amount he does today, difference being between paying upfront or more down payments (this would also diminish a little the pressure of the price drop on the SW few weeks after release).
duduspace11 "Well, since we are estimating costs, Pokemon Red/Blue did cost Nintendo about $50m to make back in 1996"
Mr Puggsly: "Hehe, I said good profit. You said big profit. Frankly, not losing money is what I meant by good. Don't get hung up on semantics"
Azzanation: "PS5 wouldn't sold out at launch without scalpers."