I know retailers take a cut, but lets ignore them and pretend that Sony sells direct to the consumer, and the cost of the PS3 is $375 which I feel is a fair amount.

If the price of the PS3 was $400 they would say sell 8,000,000 PS3s.

If they cut the price to $350, they would sell 10,000,000 (2M more) PS3s. As a long term effect which is the long run price elasticity of demand.

We can ignore all software/accessories sold for the base 8M because they would have been sold anyway whether they did the price cut or not. We're thinking at the margins here, what would they gain/lose from selling additional PS3s?

The total revenue/margins on hardware would be: (Im taking $19 or 5% off the cost at higher production amounts due to the greater efficiency of production/shipping if they sell at their ideal 10M rate)

($400 * 8M) - ($375 * 8M) = 200M

($350 * 10M) - ($356 * 10M) = -60M

See the difference is $260M (Profit -> loss) which the 2M extra PS3s sold must account for.

350M / 2M extra units means that software and accessory sales must total $130 per extra console sold to make it worthwhile. However as each console would probably be expected to have sold an average of 8 games in its lifetime with 25% of those being first party and one additional controller which im giving a margin of $25.

One controller ($25) + 2 x first party games ($70) + 6 x 3rd party games ($45) = $140.

So you see, they can maximise their profit and cut the price at the same time.

Congratulations on reaching 8k Squilliam.By the way who is TIM?

Tim is a nameless person on this forum who I gave a name to. Oh and thanks!

The razorblade model is what has gotten Microsoft and Sony into plenty of trouble this generation. It's good when it pays off as you can gain marketshare nicely but painful when it doesn't (as we've seen).

Well, the model works better for Microsoft because they can sell more razors (Xbox Live), and if you look into the E+D reports you'll see that they are far more profitable than it appears on the surface.

But as for this price cut, a 25% increase in sales long term from a price cut doesn't sound at all unreasonable with Blu Ray adoption increasing and generally a good lineup for allcomers towards the end of the year.

I price cut war on the otherhand really turns the razor blade model upside down. If both parties cut deeply then the weaker party in this exchange (Sony) would take a hellish beating, which is why I didn't dare propose a $100 cut be worthwhile.

Got to agree [stamp of approval]

A $50 cut may not make any difference at least not that big if it didn't increase sales by 2million it would just make things worse.

not good in a depression.
but oh well. my friends getting their ps3s. so yeah.

but a price cut for holidays i hope it's possible.

sony its going to get it profits back when market recovers. but it's going to be a while for them to recovers.

they likely going to focus on profits for a while.

Have aliens abducted real squiliam? There were no ps3 trolling in the first post :D

BTW they will rather start cutting in Japan and then in Europe becouse profit margins are bigger there (considering exchange ratios)

@ zlejedi: or not cut in Europe because that continent still gets them some money and is selling nicely as it is. US price cut, funded by EU price stability would make more sense.