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Using SCIENCE to learn the effects of killing used games

12:30 PM on 05.31.2013 // Tony Ponce

By eliminating the used market AND dropping prices, publishers could profit

With all this hubbub over used games and whether eliminating them would be good or bad for the overall industry, it was only a matter of time before SCIENCE was brought in to drop some truth bombs. Professors Masakazu Ishihara (New York University Leonard N. Stern School of Business) and Andrew Ching (University of Toronto Rotman School of Management) have closely studied the Japanese gaming market, where pre-owned business is much more significant than it is in the US, and shared their findings in a paper published on December 15, 2012.

Their verdict? Not quite what you'd expect.

Ishihara and Ching found that, all else remaining equal, eliminating the used market would result in a 10% drop in publishers' profits per game. However, if average retail prices for software were to drop by a third across the board -- $40 down from $60 -- publishers could actually see a 19% rise in profits. Of course, the profit increase scenario would only work if publishers agree to a reduced MSRP, the likelihood of which is up for debate.

Ishihara and Ching's study demonstrates that there are many factors involved in used game sales and purchases. Consumers assign value to their individual software purchases, and some of that value is derived from their ability to resell it down the road. Reduced retail prices could feasibly counterbalance the loss of resales.

No matter how you look at it, this is a far more complex situation than anyone could have imagined.

Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games [Social Science Research Network via Wired] (Thanks, M Gross!)

Tony Ponce, Contributor
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