Video Game Console Prices: How Low Can They Go?

Microsoft confirmed Thursday that it is cutting the price of its top-of-the-line Xbox 360 gaming console by $100, setting the stage for a possible price war among the major video game manufacturers.

Microsoft said that beginning Friday, the price of the Xbox 360 Elite console will drop by $100 to $299.99 estimated retail price (ERP) in the U.S. The Xbox 360 Pro console would be priced at $249.99 ERP, down $50 from its earlier price, while pricing for the Xbox 360 Arcade console will start at $199.99.

Sales of video games and consoles in July were down 29 percent from one year earlier to $848.8 million, marking the fifth consecutive month of decline, according to a report released earlier this month by the NPD Group. Year-to-date sales at the end of July were $8.16 billion, down 14 percent from the first seven months of 2008.

Microsoft's price drop is widely seen as a competitive move against Sony, which earlier this month cut price tags on its current line of Playstation3 game consoles by $100. With the holidays approaching, competing gaming console manufacturers, including Nintendo, which makes the best-selling Wii system, may be forced to respond to Microsoft's and Sony's price cuts.

Ironically, the NPD report said that the anticipated price cuts might themselves be partly responsible for the slower sales in recent months as consumers, anticipating lower prices, held off making purchases.

One reason to be more optimistic about video game sales in the second half of 2009, according to the report, is that a number of big-name games are in the pipeline for release during the next couple of months, including the latest in the popular Madden football series. The first half of this year saw no blockbuster game releases, the report said.