If the Xbox 360 price cut turns out to be true, it could be an effective weapon for MS to use against Sony, since Sony may be very reluctant to react and take on further losses on the PS3 business.

With a $50 price cut on Microsoft’s Xbox 360 seeming more and more likely, Janco Partners analyst Mike Hickey believes that now is an opportune time for Microsoft to take advantage and put pressure on Sony’s PS3 business. With 360 hardware sales slowing – the 360 sold just 186.6K units in May – he also believes a price cut is a necessary catalyst.

"...we believe Microsoft will lower the price of the Xbox 360, after market demand for the console has seemingly stalled. There seems to be a limited amount of natural near term catalysts on the horizon sufficient to accelerate hardware growth beyond holiday seasonality, whose ultimate consumer spend could be dampened from a hostile gas pump and general economic deterioration," noted Hickey.

"We continue to believe the Xbox 360 has a distinguished value proposition from the PS3, but Microsoft could use price as a competitive weapon, particularly after Sony reiterates focus on profitability. We do not see any waterfall competitive pricing pressure on the Wii console from Nintendo, where we expect additional supply over the holiday period will meet demand, a market equation that has been out of balance since the console’s release."