Used Videogames And Why Publishers Make Money

I posted this response on Slashdot to argue against the following reader comment:

…I understand that publishers don’t make any money off used games sales…I get that.

Publishers do make money off used game sales. Not directly, but easy to see if you analyze the system.

Person A buys a game new (ex. $50), plays it, sells it to a used game broker, let’s say GameStop (ex. $20).
Person B buys the used game from GameStop (ex. $40), part of this purchase goes to the broker for facilitating the transaction, part goes to subsidize the original purchase price (the $20 Person A received when selling the game comes from this purchase).

So Person A effectively purchased the game for less money. The lower price for Person A either allows him to purchase the game in the first place (was his perceived utility of the game between $30 and $50?), or leaves leftover money for the purchase of another game (this is his hobby, so more money may end up with game publishers).

So through the secondary market, Persons A and B share the cost. If, as the your hypothetical publisher who doesn’t “make any money off used game sales” argues, Persons A and B would both have bought the game for $50 each, giving them earnings of $100, then the game could have been priced closer to that $100 knowing the secondary market would allow for the cost sharing (let’s say MSRP of $80, giving the broker a $20 piece of the $100 pie). If it wouldn’t have sold for $80 to $100, then both A and B weren’t interested enough to each pay $50, were they?

To put cost sharing another way, my brothers and I would buy a bunch of video games when we were young. The money came from allowance and mowing lawns. To get a $50 game we’d all throw in money and we’d all play the game. If we all had to pay $50 we’d have bought a lot less games, because there wasn’t enough allowance and lawns to mow to get that kind of cash and some games just weren’t worth that much. So is the game studio and publisher losing money? Or are they making even more money? Does it just change the way the industry must operate and market their product?

Here’s the fun question: If cost sharing and a used market didn’t exist, what would the MSRP of a game be? I’d wager less than it is today.