NEW YORK (CNNMoney.com) – As it prepares the coming out party for the PlayStation 3, Sony has taken steps to keep PlayStation 2 in the spotlight. And on Thursday, the company dropped the price of the video game machine from $149 to $129.

The widely expected move, along with a recent discounting of the company's handheld gaming system the PSP, gives Sony momentum as it heads into E3, the video game industry's annual trade show, where the PS3 is expected to have a sizable presence.

Sony has held a dominant position in this generation of game machines, handily beating the sales numbers of Microsoft's (Research) Xbox and Nintendo's GameCube. Worldwide, Sony (Research) has sold more than 101 million PS2s (compared to only 24 million Xboxes and 21 million units for GameCube). Sony said approximately 1 billion games have been sold for the system.

"While we continue to innovate and design groundbreaking new products, we remain dedicated to our long-term vision for the PlayStation 2 platform," Kaz Hirai, president and CEO of Sony Computer Entertainment America, said in a statement.

The big question now is how, if at all, will Microsoft react. Traditionally, Sony and Microsoft match each other's price moves. With the Xbox 360 on the market, the company's focus has shifted. Microsoft still loses money on each Xbox sold and analysts believe the company has stopped making the original system.

That creates two possible scenarios: Microsoft could undercut Sony, dropping Xbox to $99, in an effort to clean out inventory and create more retail shelf space for the Xbox 360 – or it could ignore Sony's discount and wait for the system to sell out on its own.

A PS2 price cut could be a welcome shot in the arm for the gaming industry, which has seen revenues decline steadily in the recent months as the transition to new console technologies begins. February software sales were down 13 percent compared to the 2005 numbers. March sales fell eight percent. Analysts do not expect the trend to improve soon.

Increased hardware sales tend to boost software sales – and Sony recently lowered the tab for some of its biggest PS2 games, including "God of War" and "Gran Turismo 4" to $19.99. Third party publishers, though, might feel additional pressure to reduce the price of their current generation games. Electronic Arts (Research), the leading independent publisher, was forced to reduce the price of several games, including seminal favorite "Madden" in January. Take Two Interactive Software (Research) also recently cut the price of its hit title "Grand Theft Auto: San Andreas".