The price cut means the Xbox 360 Arcade is cheaper than the Wii
Microsoft is cutting the US price of its Xbox 360 gaming consoles.
The move will mean that the basic model will cost $199 (£112) - cheaper than the best-selling Nintendo Wii. It said that prices for the other Xbox models will drop by $50.
The cut also means that the entry level Xbox 360 is about half the recommended price of a PlayStation 3.
The US cut follows a similar move in Japan. Microsoft said it had no plans to lower European prices further.
The price cut comes into effect on 5 September. Microsoft said it wanted the price of the basic model to dip below the psychologically important barrier of $200.
About 75% of all console sales have been made below that price point, Microsoft said.
The $199 price applies only to the Xbox 360 Arcade which has a 256MB memory unit on board rather than a hard drive. Adding a 20GB hard drive could add up to $90 to the total cost.
In late August Microsoft announced that Japanese prices of the Xbox 360 would fall in September. The cut meant an Xbox Arcade will cost 19,800 yen ($182) also cheaper than the Wii.
XBOX 360 PRICES
Xbox 360 Arcade - was $279 - now $199
Xbox 360 Pro - was $349 - now $299
Xbox 360 Elite was $449 - now $399
However, Microsoft said it had no plans to cut European prices for the console. In a statement it said: "Pricing is handled on a region-by-region basis. We do not have a price drop in this region to announce."
In March Microsoft cut European prices which meant that the recommended price for the Arcade was £159.99. This is already lower than the European price for a Wii.
Analysts said Microsoft's decision was made in an attempt to kick-start Xbox sales in the run-up to Christmas. In recent months consoles from rivals Sony and Nintendo have outsold it.
"Microsoft recognized it needed to do something and I think they also can afford it," said Michael Pachter, an analyst at Wedbush Morgan. "They've got to make it up by penetrating more households and selling more software."