Of course it's not impossible. You can call it unlikely for now, but possible it is.

They need to recoup losses. I doubt they could keep cutting prices. I'm not sure that they know how much a price cut could affect their current sales anyway.

You can already get a 40GB for that if you go to sonystyle and sign up for their credit card.  Its a simple process and you get $100 off.  Its the only reason I own a PS3.

Also, standalone players are already dropping to the $300 price point.  See the other threads about the new Walmart player.  The more standalone players that sell, the more the price of producing the BR drives will go down.  I see a pricecut either holiday 2008 or spring 2009.

It's hard to say what Sony's strategy is this gen on this issue. I know back in '02 Sony said they were always willing to loose money on the front end of a generation to make large profits on the back end. Only time will tell. I think allot will depend on their sales in the coming months.

Getting a credit card just to save a couple bucks is not very wise. I hope people don't follow you're advice because this is how people get into credit trouble. You don't get an 800 credit rating by doing this, and that's what I have.

If Sony's shareholders are wise, they'd not want to drop the price for another year. The increased losses per console sold would hurt their dividends. If price cuts are supposed to be a "weapon" in the console wars, then Sony's run out of ammo.

Seriously, what do you expect? US$199? US$99? Might as well throw it in the bargain bin!

IIRC PS2 started giving profits even from the sole HW after 2 years, but console profits are also from royalties, and building a larger user base increases royalties more than linearly, as more games are released for the platform. After 2 years from launch, or perhaps more for PS3, given the higher costs, HW will start being profiting, but high profit margins will be achieved perhaps in another 2 or 3 years, just like it happened for PS2. By then, also royalties will be huge. And on this matter was one of MS' biggest mistakes on XBox 1, a life span far too short, HW was profitable only for the last 1 and 1/2 year and even worse SW houses support was prematurely cut not only by scarce success, after all XB1 sold like GC, but more than all just by the short life publicly and stupidly proudly announced by MS itself.

Though it was kinda true in some ways.  360 didn't light up the world its first year, even though it had no next-gen competition.  Only PS3 was bringing mandatory hard drives for developers to use in their games (and Rockstar has said that GTAIV was limited by one thing: lack of a mandatory hard drive in 360).  Only PS3 was bringing an HD/next-gen optical drive usable in games (up to 50gb rather than 9gb).  

As for "perceived brand loyalty" OP, there's a study out there somewhere stating that a higher *percentage* of PS2 owners responded that they would be buying PS3 than the percentage of Xbox owners who said they would be buying 360.  Factor in the install base difference and there you have it... 

It really comes down to price in a way, and when PS3 is at $299 it will really, really take off.  The value of the Blu-Ray drive for that price will heavily drive sales.  Standalone sales are tiny in comparison to the PS3 game plan, so if Sony wants PS3s in homes and won't be losing much by dropping price, they'll do it.  I bet Sony doesn't want *other* companies undercutting PS3 prices too much, rather than vice versa.

And of course, while we talk of successive "generations" of consoles and in some sense the 360, PS3, and Wii are part of one generation, the lifecycles of various consoles have different (planned and real) lifespans, period.  PS3's life cycle started one year after 360's, and will last 3-6 years longer on the back end, in part due to Blu-Ray.  This isn't to say there won't be a PS4 for 7 years, but just to say that Sony knew PS2 was still selling and could afford to tolerate slower PS3 sales upfront in order to use better tech that would be more future-proof and turn into another long term cash cow like PS2.  PS3 will still be going strong when PS4 is released, while 360 will be much more of a non-factor. 

And PS3 sales actually aren't that slow, basically tracking 360's sales since *it's* launch.  "Severly harmed," huh?  Oh, you must have assumed that PS3 would blow by 360 then without a problem.  I'll chaulk that belief up to Sony/Playstation aura and brand recognition, I guess.

I always find it funny howthe average gamer thinks they know better than the companies do. Truth is Sony, MS, and Nintendo didn't get to where they are by accident. The guys that run these companies know far more than we do. They know how to run their ships. if one or any of them cut their rpices I am sure they know whatthey are doing. there are many factors that play into cutting prices, many more than that have been explored here. Everyone here looks at raw data on just about every topic and says "well there it is" well I am telling you all it isn't that simple. it isn't just Black and white. There is allot of Gray in there that people here just dont understand or realize. exactly how many of you are billionaire Buisinessmen? I know everyone wants to sell their fanboy beliefs, but the truth is this will all play out over the coming years, and then you all can sit back and judge. until then everyone is just speculating.

If the PS3 (and X360) suffer a post GTA4 collapse in sales in May then they will have no choice but to drop the price. Painful but necessary.