If the PS5 is $599 and Microsoft releases the XSX at $499 as a cheaper alternative, I think you would see a bleed of Sony marketshare back to Xbox. I'm not saying that Sony wouldn't be fine overall. But, I think you would see that the overall sales wouldn't really pick-up until after the first price cut or so. It's easy for a diehard Sony forum user to say "I would throw $1000 at that", but the general consumer public is generally more cautious with their $$$.
I agree with you partially. In that scenario Sony would definetly lose some marketshare, my argument is that the loss would be contained and the impact of that loss would be offset by increased profitability (per unit) and - if they manage to pass the message - the positioning advantage of convincing players their console is worth that price.
It would be a bold move sure, but the market already recognizes PS as "superor" to a certain extent... after all the specs gap between PS4 and XB1 is not that dramatic and doesn't justify on its own the huge sales gap. Plus, if you take the PS3 for comparison, consider it started off in a worse place: not only it was 100$ more expensive, it was also one year late and it didn't have 1st party fanbase it has now. By the time it came out X360 had one year worth of catalogue with heavy hits like Elder Scrolls 4 and Gears Of War. Despite all these odds the PS3 still managed to end up with a slight advantage.