In a bid to keep up with rival PlayStation 2, Microsoft is dropping the recommended retail price of its Xbox console to $399, knocking nearly 40 per cent off the original launch price tag.
The new pricing will be effective from April 26. To placate customers who have already purchased Xbox consoles Microsoft has said these folk will be entitled to a gift offer worth more than $250.
Regional director of Xbox Alan Bowman said the decision to reduce the Xbox price comes from competitive pressure from rival console PS2, which he says has been an obstacle to promoting the whole Xbox "experience".
"We wanted to take away any potential barriers for purchase and enable more consumers to enjoy Xbox," he said.
"Microsoft has made a long-term investment into this [gaming] market. We launched with what we thought at the time was a very competitive price. Sony had launched the PS2 a year earlier at $749 with no competition."
Since its launch in November 2000 the PS2 has had many pricing changes. It went from a starting price of $749 to $699 in May last year and dropped to $499 by September. It then went back up to $529.95 in October before coming back down to $499 this February.
"We can't sit around and let it [the PS2 price] change. We have to be competitive," said Bowman.
Microsoft has also dropped the price of Xbox in Europe.
The decision to cut $250 off the Australian Xbox price follows a general decrease in the amount of Xbox units sold. According to Australian retail analysis group Inform, sales figures between March 14 and April 7 saw Sony's PS2 ahead of the Xbox by two to one.
The announcement also comes just weeks before the arrival of Nintendo's next generation gaming console, GameCube, into the Australian market on May 17. The GameCube will retail for $399.
Bowman says that while console price will decrease, recommended retail prices for software will remain unchanged.
The Xbox gift offer, which will available until July 1, includes two games of the customer's choice, and a controller, valued at over $250.