Sony and Microsoft Get Serious with Price Cuts

May 15, 2002

Microsoft Corp. answered Sony Corp’s markdown of its PlayStation 2 video-game machine to $199 by slashing the price of its Xbox by 33 percent in the U.S. Canadian prices will be cut as well, to C$299, according to Microsoft. Sony had also lowered the price on selected game titles from $49 to $39 and reduced the retail price of its less advanced PS one console from $99 to $49.

The price tag changes will intensify the war between console makers jostling for share in the $20 billion global video game market. The two price cuts this week mean that all three major consoles are now priced at $199, reports Reuters. Nintendo Co Ltd.’s GameCube was released in the U.S. at that price point last November. Analysts expect Nintendo, which had positioned itself as the low-cost competitor, to cut the price of its GameCube machine to maintain its hold on the market for children’s games.

The Xbox was also launched last November, but, despite a marketing blitz, international sales have faltered. Microsoft has been prepared to lose money on console sales in order to make it back in game software by building a big base of users. Analysts have estimated that Microsoft has been losing anywhere between $76 and $105 on every Xbox sold at the initial retail price of $299. Microsoft is expected to shift Xbox production to Doumen, China, near Hong Kong, from Hungary in a move that will cut costs. It will maintain its North American facility in Gudalajara, Mexico.

Moderator Comment: Will the current price war permanently
depress unit pricing of gaming console products such as Playstation 2 and Xbox?

The price war is on and the winner will be the consumer,
maybe. At least until a manufacturer falls by the wayside when it can no longer
compete. That, or the manufacturers start to use inferior components to make
more on the reduced price units.

Retailers shouldn’t be too quick to applaud this move,
either. Discounted product isn’t just going to be coming out of the manufacturer’s
pocket. It is going to take a lot of fast nickels to replace the slow dimes
they are used to in the game console business. [George
Anderson – Moderator

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