Even a "we will eliminate the Arcade and offer the Pro at that price" would take away momentum from a PS3 price cut announcement. I think they just want to postpone or "endanger" any decision sony makes about when and how much.

You consider it fear, I think it's just maximizing what you can do to get more before the competitor tries to get back.
Fear would be (in this business) when MS would try to bomb the PS3 factories >_> (imho :p)

err it could also mean drop it and we'll release a few projects we had on the side.

"Since we all expect a $100 price cut"

...

"Microsoft cannot drop the price again"

You do realise that:

1. Microsoft makes $40 per year on every live subscriber
2. Microsoft sells significantly more online content
3. Microsoft recieves significantly more royalties from games.
4. Microsoft uses commodity chip suppliers and commodity devices like Ram and DVD-Rom drives.
5. Microsoft will give Sony all the rope they need to hang themselves.

LOL, that's true..but I really think MS wants to avoid similar prices for the two consoles. They know Sony will destroy them if they do - why do you think the Arcade came down to $200? The PS3 was more expensive and outselling them for a long time..a $200 price difference is major, and is the only thing that changed the momentum in the first place. I'm not saying they don't have a trick up their sleeve..I just hope it isn't to bundle extra stuff with it, because I don't really see that helping them as much.

I definitely agree with the statements made previously about the pro and the elite SKU's being lowered to maintain a competitive edge over the PS3. I cannot agree the arcade will be dropped all together to allow for that, even if Sony drops their PS3 to $299.99/80gig and $419.99/160gig.
Microsoft wouldn't even need to match that to remain competitive, a 169.99/Arcade, 259.99/pro and 359.99/Elite would be more than enough to remain competitive. That's less than what Sony could potentially drop the PS3's price.

My thoughts on this though? Microsoft is trying to force Sony's hand into a worse situation they are in currently. Sony has 2 options now with this, either drop the price on the PS3 because Microsoft intimidated them into it. Causing them to lose more money with the PS3 and fall further into the red, or don't price-cut at all. Making these plans Microsoft have moot at the moment, but still applicable in the long-run. Meaning a Xbox 360 09/10 price-cut could happen irregardless.

The last option I should have mentioned is that Sony plans to price-cut irregardless of what they say and are financially capable of doing so. If thats the case, Microsoft will counter with their plan and the war will continue forth.

@Phrancheyez

Your saying that if MS doesn't do something and Sony drops the price significantly, then the PS3 may start outselling the 360 once again. Which would equal MS to fear Sony's price cut.

I could easily see MS lowering the prices like: Arcade $175, Pro $250, Elite $350

 Not too much. MS is already losing like what, $70 on each X360 arcade?

Thats insanity, only Sony would think to lose that much at this stage of the game.

TBH, the fact that Microsoft has open contracts with fabs etc and uses comodity prices the costs for the Xbox 360 would have come down by a reasonable margin because of the recession freeing up capacity. There was also a quote somewhere which indicated they were close to break even on those SKUs.

There is no competitiveness here, xbox has already won the price war. PS3 can't go as low as Xbox is right now, Xbox can easily lower their price still because they are Microsoft- they are just going to keep attacking PS3 until it dies. Not saying PS3 will die but all this will effect the PS4, Sony just can't beat Microsoft when it comes to money, they will change the price when they see fit.

PS3 won't have the third party back up as the PS2 had and with Microsoft finally knocking down PS, PS4 won't have back up either. Wii barely has any back up since Gamecube sold bad but it takes a while to change, PS4 won't have any back up since PS3 is selling bad. When Microsoft entered the business, the other two saw this coming, Sony was just the one to fall under Microsoft's trap.

My guess the prices of the xbox will look like this if sony does drop it this spring, Arcade 179, Premium 249, Elite 349