All I know is if I were running MS Xbox brand, I'd want to match Sony's price for the most powerful model. IMHO you have to do something to get all that PS base to consider your console. Backwards compatibility may factor in as well. All those people with PS games out there can just buy a PS5 and keep using the same games.
If MS comes in even a little more expensive, people will factor in having to buy new games as well. I realize they could go cheaper with the lower model, but if I'm MS, I'm being aggressive. Lose money on the consoles, knowing you'll sell more services later on, and the price of the hardware will drop.