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Robbie Bach, president of Entertainment and Devices at Microsoft, believes a future hardware price battle will decide the outcome of Xbox 360's struggle with PlayStation 3.

In an interview with San Joe Mercury News, he said that the company is seeking to bring down Xbox 360's costs in preparation for a price initiative that he believes Sony will be unable to follow.

Responding to a question on the hardware wars, he said, "You have look at the economics. You have to ask the question, over the life cycle, who has the cost advantage? Who can price most effectively? Who can reach the price points quicker? That has a huge impact on what gets driven."

He added, "Because we were out there first, we have a bigger installed base of consoles. We can drive down the manufacturing curve sooner and faster. And because we designed a box that was fundamentally easier to manage on costs, we're going to have that advantage."