Wedbush analyst Michael Pachter expects Microsoft to cut the Xbox 360's price this June, and for Nintendo and Sony to quickly make similar moves with Wii and PS3.
He believe all three manufacturers are profitable at current pricing for their core models ($299 for the PS3 and Xbox 360, $199 for the Wii), but says the current price structure has been in place for 18 months, with costs remaining at historical highs this far into a console cycle.
"We expect Microsoft to announce a price cut at this year's E3 Expo in June, and expect Sony and Nintendo to rapidly follow suit," he said in a research note this afternoon.
"Demand for the Wii appears to us to be fading, and we think that a price cut is long overdue. However, this time around, Sony has a motion control scheme of its own with Move, which is off to a very tepid start. We think that Move's lack of traction in the marketplace is due mostly to the high price point for a system bundle ($399).
"On the other hand," Pachter added, "Microsoft's motion control system, Kinect, has had a breathtaking start, with over eight million units sold in the first three months.
"We believe that Microsoft is in the driver's seat on pricing, and believe that the company may consider a price cut for the core console plus Kinect to under $300 in June, which could allow it to extend its monthly sales lead throughout 2011.
"A console price cut from Microsoft would almost certainly prompt its competitors to follow suit, and we are confident that by holiday 2011, all three consoles will be at least $50 cheaper than they are today."