That's also a possibility. When writing the OP I was thinking of the price cut ideas which have been floated as PS3's "saviors". That's why I left out the scenarios of no price cut or just a minor price cut, which seem poised to be disasters if they happen.

I agree with you that scenario 1 is not going to happen, barring a miraculous recovery of the dollar/euro vs the Yen (don't count on it).

I'm pretty sure #1 will not happen. 2 is my bet. 3 is likely.

If 360 gets another price cut, it will be the same price as a PS2. If the arcade price isn't cut, it won't make as big of a deal.

It all depends on when/for how much Sony drops the price.

Isn't the PS2 $99?

No, I see the bundles going for $150, though I think you can get it alone for $130.

The PS2 is declining exponentially now though (almost 50% decline from the last holiday in Europe at least). I wonder if Sony will cut its price too.

I like your analysis. Very well done. All 3 are feasible. However Killzone 2 releases in March and I think Sony can bet on that selling some systems without the pricecut. I also think that a $50 pricecut won't be a big deal for consumers, since the 360 (and Wii) will continue to be a significant $100 cheaper.

If they learned anything from Microsoft they've learned that a pricecut before the holidays can do miracles.

However at the current situation probably won't see a pricecut in 2009. I think Sony has no choice but to put profit over marketshare. There probably won't be a profitable mothercompany anymore to take the hit. A $100 pricecut with 10 million sales will lead to a $1 billion in lost revenue. This is something that's hard to earn back with the extra userbase.

You say that price is a vital factor in the current sales difference (and I agree wholly NJ5) but on these boards one is only accused of being a blind Sony fanboy who's making up excuses if one says that.
Maybe this thread could actually help in some way, most of the threads on the hot topics section is drivel of some sort.

I doubt the PS2 will see a price drop before production of the latest (SCPH-90000, which just arrived in the US a couple months ago -- its a slimline with a built-in power supply) model stops.  Not much point in selling them for no profit these days, given the number of used PS2s available, I think, unless Sony is still making loads of money from PS2 software.

I was thinking there would be one $50 cut early in 2009 until some analysts said Sony is to loose about 1.6 billions dollars this year!  The high Yen plus this huge lost throw all price cut prediction in early 09 out the window.  There is no doubt they want and need it badly, but the sad truth is Sony simply can not afford any price cut during the next few months.   

And at $199, the 360 has breached a major pschychological barrier.  Even if Sony drops the PS3 down to 299 today,  the 360 would still be a great value compare to PS3 in many buyers' eyes.