PlayStation2 and Xbox prices could fall again before Christmas, according to analysts.
Both Sony and Microsoft announced significant cuts in the price of their respective flagship consoles last week, but Frederic Diot and Adrian Drozd of Datamonitor believe that further price cuts could come before the end of 2002.
In a research note published this week, Diot and Drozd pointed out that console makers normally cut hardware prices in the Christmas period in order to boost sales, rather than in late August. They believe there is a reasonable chance that Sony might cut the cost of the PS2 again this year, triggering a console price war across the sector.
"Can Sony afford this? Would Microsoft follow suit again? Would Nintendo be dragged into the price war? The answer to all of these questions is most likely to be yes," Diot and Drozd predicted.
Sony lowered the cost of the PS2 to £169.99 in the UK on 28 August, down from £199.99. Within hours Microsoft had responded by chopping the UK price of the Xbox to £159 -- the second price cut for the Xbox since it launched six months ago in Britain priced at £299.
According to Datamonitor, Sony is well positioned for a console price war because the PS2 has been on the market longer than the Xbox and Nintendo's GameCube.
"Sony is in a comfortable position in this new price war, as the PS2 has a healthy installed base. While competitors still have to worry about reaching a critical mass to secure content and users, Sony's profits from games already offset the cost of hardware and R&D. It can now engage in a battle of wills with Microsoft and Nintendo to maintain its console's leadership," wrote Diot and Drozd.
The analysts added that Microsoft was forced to match the PS2 price cut last week because it cannot afford to be out-priced by Sony.