Study Shows Publisher Profit Decline if Pre-Owned Market Didn’t Exist

According to a new study by marketing professors Masakazu Ishihara of the New York University Stern School of Business and Andrew Ching of the University of Toronto’s Rotman School of Management, if the used games market were to completely disappear it would cause a decline in profits for publishers. The only way that publishers could gain momentum in such a situation would be to lower retail prices on games, the study said.

The research, called “Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games” used data collected from the Japanese gaming market to simulate what would happen when videogames were taken out of the ecosystem.

“The used goods market has been viewed as a threat by producers,” writes Ishihara and Ching. “However, it is not clear if this view is justified because the used goods market also provides owners with an opportunity to sell their products.”

The study also notes that, since consumers are forward-looking, they would take the resale value lost into account when making a game purchase.

The study found that publishers would have to lower their prices by 33 percent if the used games market was removed from the equation, or they would see a serious decline in profits. If they were to lower the price to the price point mentioned earlier, they would ultimately realize a profit of 19 percent. If they left prices alone, they would inevitably see a 10 percent decrease in profits, researchers concluded.

“We find that the optimal price would be on average about 33% lower than the current price level, if the used game market were eliminated,” said Ishihara in an email. “So roughly speaking, in the US, game prices should go down to about $40.”

“The reduction in price is partly driven by the fact that if the used game market were eliminated, gamers would no longer be able to sell their games and get back some money (so they need to be compensated),” he said.

Wired's Game|Life has a whole lot more on the study here. One important thing the article notes is that the study uses two unlikely scenarios: that the used games market disappears completely or that it remains the same. Judging by just what Microsoft plans to do, the market is going to change dramatically and who gets the profits from used games is going to shift – at least with Xbox One games…

image via Wikipedia

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  1. 0
    Hevach says:

    "consumers are forward-looking. The latter suggests that the future resale opportunity could increase consumers’ willingness-to-pay for new copies."

    This is a point I've made on this site and others many times: People don't collect games much anymore. The whole ritual has become one of buying and trading – the trade-in is part of the purchase price, the inevitable resale value is part of the product.

    There's been a total of 4 360 games I've kept for more than 1 year. Two of them (Mass Effect 1 and 2) were just that good and only got traded in towards their own sequels, one (Ghostbusters) wasn't that good but is sort of a guilty pleasure of mine, and one (Lost Odyssey) just sat in my backlog until I could only get $2 for it anyway so now I'm just going to believe that someday somehow I will finish it and justify the $35 I paid for it.


    Not to mention I shudder to think what it'd do to the retail market. With pitiful retail markups, Gamestop probably wouldn't be sustainable. Places like Wal Mart already used video games as a loss leader, adding hassles and hoops to buy them not for loss prevention but for the purpose of keeping you in the store until you buy anything else.

  2. 0
    Sleaker says:

    isn't this EXACTLY what has happened to the PC market? Big publishers coernered themselves started doing CD-keys for everything, and then the used game market for PC games completely dried up.  Now indie games are _net_ ing way better revenues, and big publishers are focusing on consoles.  Irconically, they are trying to DRM and nickel-dime the consumer on the consoles now… Only a matter of time I think.

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