You all need to learn how imperfectly competitive markets work. Whenever one company drops a price, the other companies in the same market will as long as they are able to(Sony might not be able to). So the second Nintendo hears about Microsoft dropping the 360 price, expect them to react quickly. Nintendo will at least match the price drop and perhaps exceed it.
As it currently stands Nintendo wouldn't force a price drop just because MS did, they'd only react if they weren't selling consoles; but they are.
Besides that the industry is such that competition isn't focused primarily on price. The consoles are not homogeneous, therefore other factors apart from price come into play when determing market share and sales.
The console market is not based on the Bertrand model that each firm would follow with a price cut in order to fully capture the market.
But hey, I think it's neato you decided to take high school economics.