Wednesday, December 03, 2008

Used Game Sales Again

I have posted previously about used video game sales. Game publishers and developers continue to take the position that used game sales are harmful to the industry. 

I still cannot understand this logic. Suppose I would be willing to pay $35 to play a particular game. Its retail price is $50. I will not buy it. If, however, I could resell it when I'm done for $20, then my total willingness to pay is now $35+$20=$55. I choose to buy the game, with a net gain to me (a "consumer surplus") of $5.  Every dollar I lose from inability to resell is a $1 reduction in my willingness to pay for the product in the first place. 

It is true that the existence of used games means that some people who would have paid $50 end up paying $20, and that the producer of the game does not get any of this $20. This is not unique to video games, however. This is, in fact, true of all goods and services that can be resold. If you buy a painting for $1,000, and later resell it for $1,200, the painter does not get any of the $1200. Suppose there were a law prohibiting resale of the painting. Then the original buyer would be less willing to buy it in the first place. The painter would make money on resales, but he would make less money on the original sale. 

The same holds true for video games. If I know that I cannot resell my game after buying it, I am less willing to buy--my willingness to pay is lower. Do video game publishers and developers really think they will make a great deal more money selling all games for, say, $30, and prohibiting resale? I don't see how. 

So, then, what is the reason why publishers and developers take this position? Are they simply mistaken? They should know what is in their interest better than I do, but companies do sometimes ignore good opportunities and use flawed reasoning. Is there some other reasoning I missing? Maybe the companies pushing this position feel that reducing used game sales would somehow give them a competitive advantage against other companies, rather than helping all game companies. 

Suggestions?

6 comments:

Richard Phillips said...

The principle argument is that using a game doesn't actually decrease its value. A game played for 10 hours is worth just as much as a game played for 0. So its unfair to developers and publishers to charge less (and give them nothing) for a product that is no different than brand new. At least that's the "moral argument."

The practical reason (or so I've heard) is that game development has gotten so expensive that's even with strong sales its unlikely a publisher will make significant profit. So publishers do actually feel it every time someone doesn't pay full retail price. Of course the obvious solution is to produce games at a lower cost. Until then, we're just going to have to put up with their whining.

tadpolesresale said...

Authors say the same about books. Maybe everything creative should be set up as a one time, one use purchase (not sure how it would work with art though - maybe a timed digital viewing?). I think it would work out to the creators detriment in the end though.

Mike Hammock said...

Tadpole's response is pretty much how I would respond to Richard's suggestion. This "problem" is not unique to video games. There are all sorts of durable goods--cars, books, dvds, paintings, etc.--that people buy, then resell later. Sometimes they increase in value, but usually they depreciate. Older video games depreciate because they face competition from newer, better-looking games. (Fallout 1 and 2 are really fantastic games, but
how many of you want to try playing them?)

One could just as easily argue that a book that's been read for 10 hours is worth as much as a book read for zero, so book authors and publishers should get a cut of all resales. But this would amount to a tax on used books, which would drive up their price. Buyers of used books would be less willing to buy, so buyers of new books would be less willing to buy. This would, in turn, harm producers of books.

It is definitely the case that game development has gotten extremely expensive. It is also very risky, with most games failing. Movies face a similar problem.

Let me make clear that I am leaving piracy out of this story. Clearly pirates cost developers some sales. Some people who would have bought the game new or used don't buy it at all, because they can download it for free. This is a loss to developers. What is difficult to determine is how many sales are lost. There doesn't seem to me to be a way to figure out how many pirates would have bought the game if piracy were impossible.

jonathan nation said...

It's an issue with three things:
- priorities
- perspective / paradigm
- self motivation

::: Priorities :::
lets define this as the list of goals, they are derived from the other two.

::: Perspective / Paradigm :::
How they view the world, issues with this comes form a combination of incomplete knowledge & the other two.

::: Self Motivation :::
there are two types that fall into this:
- what you want - want to create, have, or maintain
- what you don't want - the desire to stop, prevent, or get rid of
Some define these two as greed and fear.


Mike, you, like most who study economics are looking a the situation with a much broader view. People generally have a much harder time with interchangeable, and issues within their own life or company. That's part of the real advantage of outside consultants, mentors, and advisers is so important.


In my personal life, I know I am much less likely to purchase any media now a days simply because I look at them as a one time cost and with no real hope of getting any resale, it's just not a part of my paradigm. I guess because of that, I don't purchase many full priced games. Too many of them end up disappointing, however if I have picked them up in the price range that I am more comfortable with blowing on a bad game, then it's not as bad.

Though, it really does seem that the game companies don't understand that you can make the same amount of money by selling more companies at a lower price.

Richard Phillips said...

True, games to technically do depreciate insofar as they have to compete with newer games. But the fact that they have been used doesn't decrease their value, that's all I was saying. And yes, this logic can be applied to all sorts of other goods I was really trying to answer Mike's/prof Hammock's (which do I call you here?) question "So, then, what is the reason why publishers and developers take this position?"
I never said it was a good reason.

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