Today Microsoft Australia announced a price cut for its video game console, the Xbox. It is a drastic reduction of the recommended retail price by more than 38 percent, a cut of more than AU$250 ($135).

　　The cut comes as the competing system from Nintendo, the GameCube, is due to reach store shelves on May 17. The new Xbox recommended retail price is AU$399 ($215). The launch price of the GameCube is also AU$399.

　　This shuffles the price hierarchy of the three available current-generation video game systems. The PlayStation 2 is now the most expensive unit at AU$499 ($270). The Xbox and GameCube are now level at AU$399, a massive deviation from the predicted gradual-price-reduction process. It is suspected that Microsoft will sustain great losses on every machine at this new price due to the built-in DVD player, hard drive, and networking equipment the Xbox features.

　　This aggressive move may ignite a savage Australian price war between the vendors of the three console systems, Sony Computer Entertainment, Nintendo, and Microsoft. In Germany, retailers fought a bitter battle over the Xbox machine alone, forcing prices well below profitable levels.

　　"This is a strategic, competitive decision," said Alan Bowman, director of Microsoft's Australian Xbox division. "The fact is, our pricing here [in Australia] had become uncompetitive and we felt it an obstacle to the Xbox experience."

　　Mr. Bowman also acknowledged the agressive nature of the new pricing tactics: "Since our launch the market has changed--and we are now being unashamedly aggressive in changing it ourselves."

　　The reduction announcement was accompanied by the news that Microsoft will be offering a gift with a retail value of AU$250 to consumers who have already bought the machine. The gift includes two free Microsoft Xbox games of the customer's choice and an extra Xbox controller.

　　In related news, Microsoft has also announced that the European price of Xbox console will be reduced from 479 euros ($420) to 299 euros ($266) on April 26.

　　"We are making a clear statement today--we mean business in Europe," said Sandy Duncan, vice president of Xbox Europe. "The phenomenally positive response to Xbox through reviews, awards and game sales has demonstrated that consumers love Xbox. We want to make sure that price is not the obstacle to the Xbox experience. This is a long-term, strategic move that will benefit our retail partners, our third-party publishing partners and ultimately the gamer," Duncan added. "Xbox has always been amazing value for money, and now it is even more so - we are providing the right console at the right price. The most powerful video game system on earth, and the only one with a built-in hard drive and broadband adapter, is now without a doubt the best value available. The playing field in Europe has been levelled, making it even easier for customers to enjoy the power of Xbox."

　　"Xbox enjoyed a great launch in Europe--fantastic product and fantastic games," said David Gardner, vice president of Electronic Arts. "It's great they're making a move that will enable more customers to enjoy Xbox. Plus, this is great for publishers as our games, such as FIFA World Cup 2002 and the Xbox-exclusive Buffy the Vampire Slayer, now have the potential to reach an even wider audience in Europe."

　　There's currently no word of a price drop for the North American market.