Analyst says Sony is crazy if it thinks it can sell the PlayStation 3 for $399 this holiday season.

Although the company claims that the PlayStation 3 console is selling better than expected, Sony has yet to enter the holiday season where other next-gen consoles will likely cut prices. Of course, there’s also that looming gaming beast called Gears of War 2 seen in the horizon as well, expected to propel sales of Microsoft’s cheaper Arcade edition of the Xbox 360, currently selling for $199.

"We still urge Sony to consider a possible hardware price cut this holiday season,"says analyst Jesse Divnich of electronic Entertainment Design and Research. "If September hardware sales fall below our estimate (under 200,000 units), it could be an indication that the Xbox 360 price cut played a bigger role on hindering PS3 sales than what we originally expected."

There’s no question that the Xbox 360 is Sony’s biggest adversary: the company believes Nintendo’s Wii console is in a league of its own despite its domination in the gaming market. But because the console lacks any real blockbuster, exclusive titles like the Gears of War and Halo series, Sony has discovered that it has a lot of work to do to climb out of the red. It doesn’t help matters that the PlayStation 3 currently lacks a competitive online community like Microsoft’s Xbox Live and achievement system.

But in order to see any kind of boost in revenues this holiday season, Sony will need to drop the price of the console. Because Microsoft just dropped the price of all three Xbox 360 consoles, Divnich expects the Xbox 360 sales to rise, possibly give the Nintendo Wii a run for its money.

Edge Magazine recently contacted Sony in regards to dropping the PlayStation 3 price, however the company seems firm on keeping the current pricetag (story). "As previously discussed we aren’t making any price moves this holiday season. In my opinion, we have the best line up of any PlayStation generation going into this holiday and consumers will be very receptive to it," stated Patrick Seybold, director of corporate communications at SCEA in a recent email. Seybold is usually tight-lipped about any insider secret, so this comment comes as no surprise.

However, the lineup he refers to features the releases of a few high-profile games including the oh-so-lovable LittleBigPlanet, Resistance 2, SOCOM, MotorStorm: Pacific Rift and more. Sony will eventually unleash the virtual community system dubbed PlayStation Home, however that looks to hit the console by the end of the year or early next year, depending on how the beta process fairs with the testers. Yet despite the foreseen goodies, the console’s pricetag might spell its utter defeat this holiday season.

"The $399 price point is simply too steep to entice the casual and mainstream markets, regardless of how great Resistance 2 and LittleBigPlanet may be," added Divnich, however he doesn’t think the exclusives will pull gamers away from picking up the Xbox 360 and a copy of Gears of War 2.

Look for reviews of these games - including Gears of War 2, LittlebigPlanet, Resistance 2 and SOCOM - over at Tom’s Games in the coming weeks.