As expected, Microsoft ( MSFT) announced Monday that it is cutting the price of its Xbox video game console by $30 in an effort to juice sales. Starting Tuesday, the price of the Xbox will be $149.99. Microsoft is also slashing the prices of several Xbox games and accessories, including Project Gotham Racing 2. Through the end of last year, Microsoft had sold 13.7 million Xbox consoles. The company's goal is to push total sales to 14.5 million to 16 million by the end of its fiscal year in June. Sales of the Xbox have been disappointing to date, especially compared to those of the console's chief competitor, Sony's ( SNE) PlayStation 2. In the middle of January, Sony announced that sales of the PS2 had reached 70 million units. Console manufacturers typically lose money on each game system they sell, hoping to make up the difference by earning royalties on games for the devices. But the economics of the video game market tends to give outsize rewards to the leading player.
Video game makers will shun certain game systems if they don't have enough users. If the latest and greatest games aren't available on a particular console, it will have a difficult time attracting new users, no matter what the price of the console is. Sony currently sells its PlayStation 2 for about $179.99, but analysts expect the company to cut its price in coming months. Microsoft is cutting the prices of Project Gotham Racing 2 and other games by about $20 each. The price cuts had little effect on the company's stock. In recent trading, Microsoft shares were up 19 cents, or 0.8%, to $25.22.