PlayStation 3′s retail price will be $399.
However according to Gamespot’s coverage of the paper, the unit will cost $494 to manufacture.
So Sony will be taking an almost $1 Billion loss in the first year of the PS3.
They think it is normal for game companies to take a loss on hardware whenever a new console launches, since they typically focus on acquiring market share rather than generating a profit during the first year. During the second year and afterward, they can recover the losses with the savings that come from mass production and with licensing fees from publishers.
Link to Gamespot’s article
So this show manufacturers’ pricing can be so different, even not to cover, the manufacturing cost. With different expectations, Sony accepts losses for the first year. However on a product like PS3, it will have a high demand from the gamers in the first year and ppl would buy PS3 even it is $500 or $600.
Balancing quick market penetration and future long term sales to today’s losses of a $1 billion should not be an easy decision even for Sony.