Microsoft Australia has officially dropped the price of the Xbox 360 Kinect bundle by AUD$50, following Sony's more drastic AUD$150 price reduction for the rival PlayStation 3 console.

This now puts the 4GB console bundle, with the Kinect full body motion gaming system included, at a retail price of AUD$399, with the 250GB bundle priced at AUD$499. The 160GB PS3 is priced at AUD$349 officially, but does not come with Sony's own motion gaming system, the PlayStation Move, which retails separately for AUD$99 for the starter kit.

With retailers adding to the price war, actual store prices for both consoles will most likely be significantly lower than the recommended retail pricing, with the PS3 already available for less than AUD$290 in many stores.

Microsoft also announced a standalone version of the 4GB version, without Kinect, for AUD$249, which will be available in October.

So far, Microsoft has indicated they do not plan to lower the Xbox 360 pricing anywhere else around the world, including the important US and European markets, both of which is facing increasing competition from the PS3 due to its recent price reductions.

While analysts, such as Wedbush Securities' Michael Pachter, are predicting that the PS3 will outsell the Xbox 360 if Microsoft do not offer a price reduction, it it worth noting that the PS3's performance prior to the price cut was lethargic to say the least, often coming last place and selling below the Nintendo Wii, based on NPD data for the US market. The Xbox 360, on the other hand, has been dominating US sales, often selling twice as many units as the PS3. September sees the third episode of the 'Gears of War' franchise, an exclusive title for the Xbox 360, being released and most likely being the top seller for the month, while A-list multi-platform games such as Modern Warfare 3 and Battlefield 3, based on historical data, should also help the Xbox 360 more so than the PS3.