Is Sony beginning the same kind or price war they started (and won) with Sega?
For context, see the text of this comment by MonkeyKing1969 on my post documenting price drops for the original PlayStation.
The blue laser diodes have reportedly dropped in cost. The Emotion Engine hardware has been dropped from the new 80Gb PlayStation 3. Sony has reported that they have nearly full capacity production of the PlayStation 3 systems. Ideally they should be able to drop prices as their costs change, and this $100 price drop seems to be part of that.
So what's different? Whereas I suspect that Sony controlled the production of almost everything in the original PlayStation and in the PlayStation 2 (except perhaps the RamBus stuff), they have a partnership with NVIDIA for the PlayStation 3's graphics chip, the RSX. That's an entanglement I bet they wish they didn't have. As I recall, NVIDIA and Microsoft didn't part on the best of terms from a similar relationship on the original Xbox.
Microsoft doesn't own everything in the Xbox 360, but it does own more than the original Xbox. Still, it does depend on IBM and ATI/AMD for parts. The Xbox 360 ain't no Saturn, so to speak, but I'd like to hear a professional's opinion on how quickly and deeply Sony and Microsoft will be able to reduce costs of their respective systems.
If Sony drops the price again in a year by another $100, I do wonder if Microsoft will be able to keep up. Perhaps at that point, Nintendo's Harrison will want to reconsider his bravado.
I think the question isn't so much "if Sony can afford another $100, can Microsoft keep up?" as "Which console can get to $199 first with a good catalog".
Sony didn't really drop prices by $100, if you notice. They opened at launch with models at $499 and $599. After this price "drop" they'll have models at $499 and $599.
Sure, there is more "value" in these prices now, but I think it's fair to say that absolute price is a much bigger driver of console sales than a feature list, at least til we get under $250 or so.
To expand on skip's point, Microsoft, Sony, and now Apple (with the iPhone) has demonstrated that at least at this stage of the game, people just don't want the non-premium versions. The "premium" version of the PS3 is still $599, which means the effective price change is zero.
I'm more skeptical of Sony's costs here: They bumped up the hard drive and threw in a free game - actual (physical) cost to them for both can't be more than a couple of bucks.
At the outset, Sony was losing $200-300 per console. I can't believe that they've managed to shave that much off the manufacturing cost in six months. Plus there's marketing costs, and they're simply don't have strong software sales at this point to make up for it.
I think the the fact that they didn't change the $599 price point is indicative of the fact that they simply can't afford to. They're still bleeding tons of cash on this thing, and can't afford to take an even bigger hit with each sale.