The Xbox price cut, to $199 from $299 in the United States immediately and to 24,800 yen ($193.12) from 34,800 yen ($271) in Japan effective May 22, comes two days after Sony said it would cut the U.S. price of its market-leading PlayStation 2, which came out a year before Xbox, to $199.

Microsoft said it has been planning its own price cut for weeks and that major retailers would have promotional displays up this weekend reflecting the new discount. The Canadian price will also be cut, to C$299, the company said.

The latest price cuts were scheduled to be unveiled next week, but Microsoft is believed to have advanced news of the discounts to eliminate any price advantage Sony might have had.

Analysts have estimated that at the initial retail price of $299, Microsoft has been losing anywhere between $76 and $105 on every Xbox sold. This means that with the new price, Microsoft will lose between $176 and $205 on every Xbox sold.

Analysts have become more certain in recent weeks that Microsoft would need to cut the price of the Xbox, in part to boost to its user base in the United States and in part to keep parity after deep price cuts in Europe and Australia.

Those cuts -- close to 40 percent in some markets -- came only six weeks after the consoles launched, as Microsoft conceded the initial high prices had crippled sales.

In part because of those weak European sales, and in part because of the sluggish sales Microsoft said it is experiencing in Japan, the company recently lowered its fiscal-year unit sales forecast for the console by as much as 40 percent.

The two price cuts this week mean that all three major consoles are now priced at $199 in the U.S, the largest gaming market. Nintendo GameCube came out in the United States at $199 last November.

If Nintendo will lower the price of its GameCube now as well, it still unknown. In early April, a senior Nintendo executive told Reuters the company would reconsider its GameCube pricing if Sony announced a price cut, especially to the $199 level. So it is likely that we'll hear about a price drop soon.

We were told by a Microsoft representative in the Netherlands that the company won't lower the price of it's console any further in Europe or Australia.