The big question now is how, if at all, will Microsoft react. Traditionally, Sony and Microsoft match each other's price moves. With the Xbox 360 on the market, the company's focus has shifted. Microsoft still loses money on each Xbox sold and analysts believe the company has stopped making the original system.

That creates two possible scenarios: Microsoft could undercut Sony, dropping Xbox to $99, in an effort to clean out inventory and create more retail shelf space for the Xbox 360 - or it could ignore Sony's discount and wait for the system to sell out on its own.

A PS2 price cut could be a welcome shot in the arm for the gaming industry, which has seen revenues decline steadily in the recent months as the transition to new console technologies begins. February software sales were down 13 percent compared to the 2005 numbers. March sales fell eight percent. Analysts do not expect the trend to improve soon.