Used Games Study reveals surprising statistics to make market work
In good news for companies such as GameStop, two marketing professors, New York University Stern School of Business’ Masakazu Ishihara and Andrew Ching from the University of Toronto’s Rotman School of Management, figured out a series of fomulas in a paper entitled “Dynamic Demand for New and Used Durable Goods without Physical Depreciation: The Case of Japanese Video Games.”
The paper is available for public consumption and contains some fascinating insights to data collected from the Japanese gaming market and simulations on the removal of used game market. The simulations reflected things such as consumer backlash, consumer behaviour and the resultant sales of new products.
In the study, Ishihara and Ching write about the importance of a used game market and note that the used game market is not necessarily a “threat” to gaming “producers.” There is an importance of noting that both can easily exist together and it doesn’t have to be a constant battle, especially with the rumours of used game lockout systems. Isihara and Ching not that “the price and resale value of used games could be endogenous,” and may not be as bad for one another as originally reported.
Both marketers found that consumers are “forward-looking” purchasers and are aware of the possible resale value of a game after purchase and if their store offers trade-in deals. They also made a note that if consumers were to “observe all the state variables and understand how the equilibrium prices are generated,” they too would be able to influence the adjustments in game and used game sales. This could mean creating systems amongst friends for sharing games or limiting the amount of purchases and trade-ins within friend circles or gaming communities to adjust for the decrease in valuing used games.
The two geniuses even figured out a formula that involves various factors that counteract statements about the profitability (or lack there of) from used games sales. Initially stating that if x = y; x being the number of used copies of ”a game that are ever sold”, y as the number of new games that would have been sold had there been no used game market, then using the formula below adding in factors such as release time and the possibility of buying a used copy could turn out profitable from both sides.
The marketers also noted using different formulas that if the entire used game market were eliminated, the ” optimal price” for game sales “on average” would need to be ”33% lower than the current price” point, ranging from $50-$60 in the United States. This would make the average game around $40 and would be a come as a large compromise for video game developers and retailers alike. With GameStop moving into hardware trade-in’s such as used Android and Apple tablets, they have definitely quietened their response to the possible future of a lack of backwards compatibility.
While living in a country where the average video game costs over sixty dollars, Isihara and Ching’s findings bring up a great hypothetical case study that could be used in the American game market. With each generation of gamers, most of us long to go back and play old games that are often cheaper in used game bins than in digital downloads, so with the possible elimination of a used games market, regardless of financial issues, there is a possibility of damaging gaming’s cultural history.