Andrew Ching: Video game producers see threat
Video Game Producers See Threat – But Should See Boon – in Resale Market, Study Says
Producers of video games on compact disc look with alarm at the market for those same games on used CDs. Their worry is that the second-hand games pose a threat to the sale of new games – a threat that begins to loom almost as soon as the new discs are released.
The producers need not be so anxious, according to a new study by a Johns Hopkins University marketing expert. They fail to see that they could benefit from the used-game market, because it enables buyers of new games to look forward to eventually reselling the discs.
Consumers therefore have one more reason to keep buying new games, and that should make the producers happy, says the study. The paper also found that the producers can still prosper in the absence of a resale market if they lower the prices of new discs by about a third.
“We found that the resale effect definitely plays an important role in generating the sales of new copies,” says Professor Andrew Ching of the Johns Hopkins Carey Business School, co-author of the paper with Associate Professor Masakazu Ishihara of New York University. Titled “Dynamic Demand for New and Used Durable Goods Without Physical Depreciation: The Case of Japanese Video Games,” it appeared recently in Marketing Science.
Ching and Ishihara say the topic provided them with a way to study how new durable products in general are affected by the existence of markets for used versions of the same goods.
In regard to the video game industry – whose global value in 2018 was $135 billion, 11 percent more than in 2017, according to industry analyst Newzoo – the paper asks a central question: What would be the impact on producers and consumers if the market for used games were to vanish?
Some factors have already pointed toward the demise of the market for used games. In 2013, for example, Microsoft announced that its then-new video game console, Xbox One, would require an installation fee if gamers wanted to play with a used CD. (Consumers were not pleased.)
Additionally, and perhaps most noteworthy, sales of video games through digital distribution (including for home consoles) have been growing rapidly in recent years. Digital downloads are seen as a potentially mortal blow to the market for used video games on disc, the researchers say.
To reach their findings, they assembled and examined a novel data set that comprised statistics on the trading in Japan of new and used video games. The results indicate that if the market for used games no longer existed, producers would need to lower the prices of new game discs by about 35 percent to continue attracting buyers and game boosters and to maximize profits. Consumers would score by saving money from the lower prices of the new games, though those would coincide with the loss of the resale market.
“Lacking a market for used games, the producers would stand to lose a lot of money if they failed to adjust their prices downward by the percentage we recommend in our study,” says Ching. “As we note, it would be a win-win for producers and consumers alike.”