How much room does Vita have for a price drop, though? Nintendo obviously had plenty of wiggle room in 3DS' pricing, but I don't think Sony have that luxury.
No, they don't have the luxury of wiggle room. But by not taking any action, they've basically withdrawn from any competition with the 3DS. Their inaction suggests that they've already ceded the mainstream market to Nintendo, after only half-a-year on the market. It seems pretty natural and common-sense to those of us who have been following the sales here every week - but once you sit down and let that sink in, it's a really big deal to think of a name like Sony giving up the fight before it ever really even started.
Maybe they'll announce a price-drop in the next month or two to try to salvage something - but there's a point in time not too far off when even a big price drop won't matter at all. Software development is already drying up (I can't imagine much of anything new being green-lit for Vita at this point), and once 3rd-parties shift focus en masse to 720/PS4 very soon, even the ports will dry up. What good is a price drop when there are no games left for your system?
If the goal now is to beat the 3DS than Sony has some screws loose. They should at least be aiming to make the Vita be a profitable platform in the end,
I agree with you, but that's a tricky thing for Sony. The only reason systems like N64 and Gamecube were still worthwhile for Nintendo was because of the insane amounts of 1st-party software that Nintendo sold (even on those systems). Those big 1st-party sales offset the overall weakness in the hardware numbers.
Sony doesn't sell 1st-party handheld software. Certainly not in big numbers, and especially not in Japan. And handhelds always have much smaller tie ratios than the home systems. With a tiny userbase, small attach ratio, and weak 1st-party software sales - there's just nothing there for Sony to try to salvage. Their 1st-party status leaves them in a position where they either need to push a massive install base for 3rd-parties to thrive, or they're actually better off just leaving the system to die and pulling out. There's no middle ground for a handheld system with Gamecube/N64 type numbers with Sony's 1st-party status.