$399 is still very expensive when you think about it. Real gamers I doubt will see any advantage of PS3 over 360, especially considering the lack of games this year. If the price can go down to $299 by next year, PS3 may start to dominate like PS2.

I think Microsoft will have contingencies up the WAZOO!!! They don't want to make another price drop this year, but they also know this is their one and only chance to gain an insurmountable user base lead on the PS3. Therefore, if the PS3's price drop results in significant sales increases for Sony, the 360 will see a price cut before mid November.

I wouldn't call it the one and only chance, just the latest, greatest chance. 360 already put a decent gap between itself and PS3 by launching early...but I agree that there will be contingencies up the wazoo. :)

I still don't understand how Sony is saving much money on the 40 GB compared to the 80 GB, but price cuts are a good thing for PS3 right now.

What about fictional gamers?

The thing is, can MS afford to make another pricecut?

Don't forget all the problems with the RROD and scratched discs, this IS costing MS a fortune and MS want to break even and even post profits next year...which I seriously doubt they will be able to do unless they keep their new price level for the better part of another year.  Also don't forget all the extra millions that MS throw around for buying up these exclulsive agreements (eg. $50m for GTAIV exclusive content only).  All this cost is in the big pot.

Also, as you have mentioned.  MS can smell the blood of Sony and will stop at virtually nothing to get the better of them.  But, if they do make more huge losses to make up more ground on Sony and the Playstation brand and it doesn't pay off (ie. they don't come in 2nd at least this generation), then they could be out the home console race from the next generation onwards. 

Davygee, if Sony can afford to drop the PS3 to $399 and corresponding prices worldwide, I don't think there's any doubt that MS can drop their price too... They're a much richer company, and they have a better chance of breaking even on the 360 than Sony does with the PS3.

Keep in mind that Sony will allegedly drop the price by 33% worldwide. Microsoft can certainly afford a small price drop. They could even afford a big one, but they won't need one.

The thing about RROD is that Microsoft attached the loss to the previous fiscal year, so unless it costs them over $1 billion in this fiscal year, the loss is already accounted for. I have a feeling the $1 billion is intended to last at least a couple of years, if not the system's entire lifetime (but that probably depends on if hardware revisions like Falcon fix the issue going forward).

Of course, further price cuts on the 360 could still delay profitability. Personally I don't think MS will bother with a price cut, I've been hearing lots of bundling rumours, I think MS will use that instead. Throwing in a couple of games is nearly free, and $400 still puts PS3's "worst" SKU smack-dab in the middle of 360's two best SKUs...it's not that big of a threat.

With a better game lineup and a price that's still significantly lower, I think MS will rely on bundles until sometime next year. Maybe a price cut to coincide with one of PS3's big game launches.

The thing is though.  Even the PS3's "worst" SKU is much better value for money than the 360's "best" SKU which costs more money. 

@davgee

VERY well said

 Actually its not. You are talking about the Blu Ray player obviously.  But the thing is the American market, and other markets to an even greater extent, has shown itself to be very adverse to moving to high def dvd's. Something only has value if people want it, and so far the American people don't. Standard Dvd's are still over 90% of the Dvd market, after HD DVD and Blu-ray have been out around 2 years.

But if we take your reasoning and apply it to something people do want, like quality game titles, the 360's value this holiday season skyrockets.  In fact, when we apply your reasoning to game titles, most gaming commentators would place the value of the Core 360 higher than the 80gb PS3. You have to remember that value is a comparitive term, not a universal measure. Until the market wants, or decides it needs high def, the PS3 is just an overpriced game console that lacks quality titles.