The Arcade version now costs £160 after Microsoft affected a price cut of £20, making it cheaper than the Wii, which had run away with the race for sales with Xbox 360 and Sony's PlayStation 3. Microsoft also announced reductions for the 20GB Xbox 360, which will now sell for £200 after a price cut of £50.

The 120GB hard drive Xbox 360 model will now cost £260 after Redmond culled prices by £40.

Meanwhile Microsoft’s Interactive Entertainment Europe vice-president Chris Lewis has claimed that the company has managed to rake in almost 50 percent of the revenue generated by the console and gaming industry.

 "We've taken 42 per cent revenue share of next-gen games market - including hardware, peripherals and software, as well as the stunning performance of Live." Mr Lewis told trade magazine MCV.

However it must be noted that Redmond had a year's start over Nintendo and Sony. The Wii has managed to win the console war outselling both the PS 3 and the Xbox 360. With its revolutionary controller and low cost, the Wii was on top of every shopper's list last Christmas leading to a reduced supply.

Xbox 360 is at best second in this battle, but it could take hold in Europe following the price cuts.