Microsoft has officially announced a price cut for the Xbox 360 in the US. This confirmation comes after weeks of rumours and follows the announcement of a price cut in Japan earlier this week.

The Xbox 360 Arcade will retail at $199 in the US from the 5th of September while the 60GB Xbox 360 will sport a price tag of $299 and the 120GB Elite will cost $399.

Microsoft’s reasoning behind the new lower price was their belief that history shows that over 75% of console sales happen after the price falls below $200. The new price makes the 360 Arcade the cheapest current generation console on the market, notably $50 cheaper than Nintendo’s Wii which retails at $249.

Microsoft are hoping that the price cut will enable them to better compete with Sony, although senior vice president of the Interactive Entertainment Business at Microsoft Don Mattrick acknowledged to Business Week that the company is not likely to catch up with Nintendo. “I’m not at a point where I can say we’re going to beat Nintendo.”

While Nintendo is currently leading the current generation race, Microsoft believes that they can beat Sony to second place. “We will sell more consoles this generation than Sony,” says Mattrick. His belief is shared by IDC analyst Billy Pidgeon who told Business week that “I expect the 360 to remain in second place this generation. But it’s going to be close.”

NPD figures for July show that Nintendo sold 11.4 million Wiis in the US, followed by Microsoft’s Xbox 360 with 10.7 million and Sony next with 5.1 million PS3s sold. However, market research firm IDC shows that Sony and Microsoft are battling it out for second place worldwide. IDC estimates that by the end of 2008 Microsoft will have shipped 27.7 million Xbox 360s in comparison to Sony’s 24.2 million PS3s. Nintendo are expected to lead the race with 44.5 million Wiis shipped.

“We are thrilled to be the first next-generation console on the market to reach $199, a price that invites everyone to enjoy Xbox 360,” said Don Mattrick.

“Xbox 360 delivers amazing performance at an extraordinary value with the leading online service and best lineup of games, downloadable movies and TV shows available from a console. The majority of consumers make the decision to buy consoles once the price falls to this mark, making this an important milestone for consumers and the industry.”