Summary
Microsoft is making the correct moves on pricing to drive console demand and to stimulate more game production from 3rd parties
Analysis
The Xbox price cut was correct. In a console industry, you cut prices as soon as your manufacturing costs come down in order to drive more demand, and just as importantly, to show software publishers that they should support your platform since it will have many more users in 18 months than it does now. Those of us on the wealthier end of the spectrum sometimes forget how $50 can actually make a difference in demand, and this has been shown for multiple console generations- there is no reason to believe it won't happen here, unless you're PS3 and you truly have no software
Now that MS is moving to the smaller and cheaper chip sizes, they can afford to lower the box price, especially since the new chips deliver a lower heat signature, fixing the warrant issues in the marketplace. As Nintendo continues to show strength at $250, and as PS3 tries desperately to stake out the high end, XBox was in danger of being priced too high, but still feeling like it was missing some of the gee whiz features of the PS3. There are clearly enough XBoxes in the channel - now is the time to drive sales, and price cuts are a well understood way to do so, with no apparent cost to the brand equity which one would see in other categories
