Knowingly Undersold

One obvious solution for Nintendo would be a price cut for the Wii console. It can certainly afford to do so. The firm's financials hint that the Wii has been a profit-making piece of hardware since day one, never sold as a loss leader - unlike its rivals' machines. With the immense volumes manufactured since then, and the rapid decline in the price of the system's components, production costs will have dropped significantly. Cash-rich Nintendo could easily drop the Wii's price point without taking a significant knock.

It won't. One reason alone is enough to justify leaving the price exactly where it is - namely that with Christmas approaching, there's no reason to believe that supply and demand of the Wii will be any more balanced this year than it was last year. While the console is in stock at most retailers today, this situation is unlikely to persist into November. Shortages may be less acute than last year, but Nintendo will almost certainly fail to meet demand for the Wii once again this Christmas. With more people willing to buy the system at its present price point than there are consoles for them to buy, it would be insane for Nintendo to drop its prices before supply once again outstrips demand in the New Year.

Another factor, however, militates against any significant price-chopping by Nintendo - and that's the firm's recent discovery of the power of model updates. Changing models during the lifespan of a piece of consumer electronics is nothing new, of course - think back to the PSone, or the slimline PS2 design. However, where Nintendo is more likely to look for inspiration is outside the games industry (mostly).

Apple, whose "disruptive" iPod music players had a remarkably similar effect on the digital music player industry as the Wii has had on the games industry, has become the master of model updates. Every autumn, the firm updates its range of iPod models - introducing new capacities, new colours, new features and, on some of its more mass-market models, entirely new case designs. Crucially, these feature updates allow Apple to gloss over the fact that its price points tend to stay broadly the same from year to year, evading the sharp downward trend of most consumer electronics sectors.

Nintendo's model isn't quite as design-focused as Apple's - indeed, much of its hardware is perhaps most charitably described as comfortably twee - but the business model is broadly the same. This week, the company announced a new Nintendo DS. With larger screens, a small camera, an SD card slot to take advantage of a new download service, and some new audio controls, the DSi is an incremental step over the DS Lite. It's also got just enough of the shine of a new product to allow Nintendo to maintain the DS range's price point.

Expect the same thing to happen with the Wii. Nintendo doesn't strike me as a company that's willing to play the console business price-drop game any more. Conventional industry wisdom would see a GBP 50 or more price drop for the Wii by mid-2009, to secure the console's position relative to the Xbox 360. I'm not sure I see that happening. While a small "credit crunch" price cut is likely - perhaps to GBP 150 - Nintendo's strategy is much more likely to involve a new Wii, with slightly different industrial design, some new colours, and a handful of new features, such as expanded internal storage. The price point, meanwhile, will remain broadly the same.

Gamers, of course, will be astonished at the gall of a company selling significantly outdated hardware at a higher price point than something like the Xbox 360 - and will complain of Nintendo trying to "fool" them with its new update. It doesn't matter - they'll still own a Wii console of some description, and will buy games aimed at them as they appear.

For Nintendo's purposes, the consumer electronics approach makes perfect sense - a revamped Wii will make a stir at retail, justify a major marketing push, intrigue new buyers and manage to create the same hype as a price cut, without actually cutting the price. After being part of the market for decades, the formidable price cut may be about to find itself defenestrated from one platform holder's toolkit.