After many complaints and lost sales due to the high price of Sony's PS3, the decision to drop the price by $100 has brought the PS3 to a price more consumers might be willing to pay.

While Nintendo believes it won't affect the sales of the Wii because the PS3 is still double the price, Microsoft's best Xbox 360 product is only $20 cheaper which creates a much bigger threat on that front to Microsoft.

The PS3 initially overshot market demand when Sony launched what is objectively the best quality graphic gaming console ever on the market. Although the product was attractive to consumers, a leveragable cluster of market demand was not willing to part with $599 for the experience of even radically incremental improvements in performance, however the $100 decrease in price have increased PS3 sales by 135 percent.

As competition increases in the game console market, understanding the market demand curve is key because Sony has just crossed it. Because consumers were happy with the slightly less impressive Xbox 360, at $20 below than the PS3; so Microsoft will have no other choice but to cut their prices, possibly creating a price war in an already speciously profitable business of gaming consoles in order to drive sales of the real profit engine, the games themselves.

A great piece about the changing shape of the video game industry was on BBC Business a couple of weeks ago that I pledged to capture here that shows how makers of games and consoles alike will need to adapt to an ever-changing competitive environment.

Add to the mixed reception had by the latest consoles - Microsoft's first-mover next-gen advantage with Xbox 360, the surprising uptake on Nintendo's innovative new Wii, and the disappointment of Sony's PS3, the advent of in-game advertising models, mobile and online game play, the beneficial effects of software piracy and the critics ever-watchful of more violent or sexually explicit titles, I thought this was a nice summary of the video game market and the challenges that lie ahead. Here's the excerpt:(read more)