[gryson]

I wouldn't say that the Japanese side of Sega wasn't aware of the issue of pricing the console too high. In fact, Hayao Nakayama often spoke of this in 1994 - he was very sensitive that a high-priced console would not sell in America (and used the 3DO as evidence). He was quoted a few years back as saying that the reason he approved the 32X was because Sega of America were insistent that the Saturn was priced too high to ever sell there (the quote is in the book Sega Mega Drive Collected Works).

However, the 32X failed spectacularly, and that left Sega with nothing but the Saturn. Their response was to price-match the PlayStation, which seriously pushed them into the red. There wasn't much that could be done at that point.