Its not a 2 way relationship between the Xbox 360 and the PS3 theres the Wii as well.

If Someone buys an Xbox 360 instead of a Wii

• The HD gaming market expands so that entices more developers to develop for HD systems.
• Sony doesn't lose a customer
• Sony wins a little.

If someone buys an Xbox 360 instead of a PS3

• The HD gaming market expands, so that entices more developers to work on the HD systems
• Sony loses a customer so therefore loses some potential revenue especially from 1st party software
• Sony loses moderately.

If someone buys a Wii instead of a PS3/360

• The HD market doesn't expand, the Wii market does and that attracts developers away from HD development
• Sony loses a customer so therefore loses some potential 1st party sales
• Both Sony and Microsoft lose the greatest.

So based on this you could say that Sony would be winning and losing at the same time. They want the HD market to expand but not at their own expense, so I bet they would rather someone buys a 360 instead of a Wii rather than have it canibalising their own sales. But even if they do lose potential sales its better that the Xbox 360 gets them than the Wii.

Sony is gaining from these price cuts - anything that could possibly keep the Wii from gaining tracting with developers for a little bit longer is going to give them more time to find their feet and cut the price.

Sony is losing from these price cuts because an Xbox 360 sold is a PS3 not sold. So they lose out on potential customers. There will be substitution, even if the Xbox 360 is considered an "Inferior" product like say margarine is to butter, if the price of margarine goes down there will be fewer sales of butter as they both do essentially the same thing.

MS target for 360 is one billion.

no... one gillion!

Squil, you make a really good point about attracting HD development, but there's 2 problems:

1) It's an argument made in terms of absolutes without considering the market situation.

2) You put the 360 versus the PS3 and Wii one on one, but you put the Wii versus Xbox/PS3 together. Therefore, you're making the effect seem disproportionate. You have to consider someone buying a Wii versus 360 and Wii versus PS3 separately.

About the market situation: currently, Wii has 47% market share. For simplicity's sake, let's just say half. So that leaves the other half to HD gaming. HD development is not even close to being in danger.

Since we're on the topic of this pricecut, I'm going to say that this pricecut will not have highly significant effects for the 360. I detailed my reasons a few posts up.

So, on the scale we're dealing with, a small extra amount of 360's moving rather than Wii's (I'm assuming Arcade, since that's the Wii's main competition, thus the small extra amount) wont heavily affect the balance of HD versus Wii development. However, when it comes to marketshare of the HD market, whatever small effect this has is doubled, even though it may still be small.

So what it comes down to is, the 360 moving units against the Wii will affect HD/SD development half as much as it affects the market share of the competing HD consoles. And so, it may have a very small effect of moving development to HD, but it also had a doubled effect of that development focusing more on 360 than PS3.

So we have 6 scenarios:

Wii over 360: HD/SD, small SD gain. 360/PS3: PS3 gains twice as much.

Wii over PS3: HD/SD, small SD gain. 360/PS3: 360 gains twice as much.

360 over Wii: HD/SD, small HD gain. 360/PS3: 360 gains twice as much.

PS3 over Wii: HD/SD, small HD gain. 360/PS3: PS3 gains twice as much.

PS3 over 360: HD/SD, no change. 360/PS3: PS3 gains significantly.

360 over PS3: HD/SD, no change. 360/PS3: 360 gains significantly.

Wii over PS3+360 considered together: HD/SD, small SD gain. 360/PS3: no change.

But since we're talking about this price drop: the Wii and PS3's price hasn't changed, whatever they've done to each other up til now will mostly remain the same.

The 360, however, will go invading in Wii territory. Thus, case 3 happens: HD/SD balance not greatly affected, but effect on 360/PS3 distribution doubles, in favor of the 360.

So, my point is, the 360 dipping into the Wii market will hurt the PS3 more than case 1, someone buying a Wii over a 360.

I understand brand loyalty/fanbase, but rrod? The Jasper model will come next month,the Falcon has about 10 % failure rate (unlike 30-33 % from the early models) so Jasper will be like 5 %,pretty low to me.

Now,in US...they like Gears and Halo... they like price cuts... get my point?

I don't think that the PS3 sales will fall at all. Is just that the 306 sales will increase....

By how much? It remains to be seen....

but PS3 is hurting already.
I agree that 360 price-cut will not effect PS3.

Personally, I hope it does so sony will cut the price of PS3.

Why don't they keep the 40g and sell it for less?

i think your reasons are wrong for why the price drop wont do much. my reasons are as follows:

1) RROD- ps2 had a sky high failure rate but it didnt stop anyone buying more ps2's. fact is, when you like a brand you will stick by it through thick and thin. Ps2 proved this with it's crappy construction and no doubt with the 360 i have seen the same. regardless of how many rrod's ppl have had, they have stuck by it.

2) I think PS3 is becoming more value for money as to when it was released. BR is now definitive HD format, more 1st party games being released, more exclusives being released, better games being released, PS3 now cheaper then when it was released and last but not least, people do not need to worry about the PS3 dying as it was predicted to do within the 1st few months of stale sales. The Ps3 is doing far better then it was on release and its future looks a hell of a lot brighter. 

3) Overall, it is cheaper then a 360. If anyone is to buy a 360 and have it upto spec, they will need to spend money buying a wireless peripheral, hard drive and even then they wont have anything to watch HD movies on. to get the most of online gaming they will have to fork out even more money. The ps3 is a one of purchase and you get all that you would on a 360 and more. 

4) games on the PS3 are cheaper. My mate bought DMC4 and Uncharted for £20. thats a total on £20!!! 

This is the real reason i believe the price drop wont be having much of an impact. 

In the US they also like value for money. Overall it still works out more expensive. 

$199 for arcade but what good is this? you still need wifi and you still need a decent hard drive considering MS refuse to have a BR add on and they want to overcome this problem by having Content download instead. We all know MS HHD are rip offs and you having to buy a decent size one as well as wifi will amount to at least $399. is that cheap? you call that a price cut? that's calling consumers stupid hoping they dont see what they will end up having to pay for at the end.

personally i am the one who is hesitating not because of 360's price, is the RROD and the games. i hav a ps3, i planned to buy 360 twice but twice i hesitated. the 1st time i was dying for gears and bioshock, but then my home got a powerful pc later n i played them on pc. after that, lost oddysey fable2 and infinite undiscovery make my desire burns again, but suddenly  i heard a few frens got rrod on their console, n also the bad reviews for infinite... luckily i still got my ps3 to be with me, but it just that i miss my rpgs...

by the way i just found out fable 1 is on pc? so logically speaking fable2 will b on pc as well. alrite then only left the lost oddysey. omg i wan that game BUT HOW??!! i wanna know the story, i wanna immerse myself into the atmosphere and the music created by the original FF music creator...