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Selling used games is the most natural thing to do From the "For Future Reference" department The Guardian has recently published an article on the growing unease of the gaming industry with second-hand sales. The article has made its rounds on Slashdot and a few blogs. Basically, the video game industry is complaining that the resale of used games cuts into their profits. Instead of purchasing a shiny new game for $50, gamers wait a few days or weeks, and buy it second-hand from specialty stores or on-line. For full disclosure, I must admit that I’m one of the culprits: I am actively selling games I don’t want anymore through Amazon.com, and I’ve purchased most of my games in the same fashion. The gaming industry is right to be worried about the second-hand sale of its products, just like any media content industry should be afraid of it. However, none of these industries has any right to prevent its customers from trading used content, at least not in the capitalist society such companies flourish the most. The market for a product is defined as the equilibrium between the demand and supply. There are folks who’d purchase a game for $50, but there are also those who wouldn’t pay more than $30. The amount of both groups and all people on the demand curve is what we call the elasticity of demand. The elasticity of demand tells you how shoppers would react if the price changed in a certain fashion. For example, a perfectly inelastic demand for a product would yield no change in amounts sold, regardless of the price change. Basic staples or gas fit best into this category: no matter how expensive milk gets, on aggregate people would still purchase roughly the same quantities. On the other hand, highly elastic demand for product may actually work in favor of lowering prices, as every 1% drop in price would yield more than 1% growth in sales, thus increasing the overall revenues. Elasticity of demand is a function of multiple factors. Considering video games, the most influential factors include the availability of substitutes, backward availability, portability and the product’s life span. There are plenty of substitutes for games; the most often mentioned ones are DVD movies. They cost on average $15, and in light of this number, especially if the content of the DVD is enhanced, people may perceive new games to be overly expensive. Thus, there may be fewer people willing to buy the game at its full price and more at a discount, flattening the demand curve. The second factor, backward availability, is often underrated by industry observers. At a time when the vast majority of products are derivative works of an earlier product, such as sequels or remakes, the availability of the original works can undercut the sales of new products. For example, I have recently found out that my computer was not powerful enough to run the new Civilization IV. However, it is more than capable of running the original Civilization, and plenty of other games, thanks to specialized software. I have spent days replaying Settlers II, even though there have been several more modern versions of the game, and the same holds true with many other strategy, role-playing and action games. The fact that I can still play all these games and thus spread their cost over the years ($50 over 10 or more years becomes quite cheap), forces me to perceive their remakes as being too expensive at their current price. The industry cannot do anything with either of those two factors. They are very well established in all industries dealing with any kind of demand curve, and they learned to live with it. However, the next two factors can be significantly affected in the industry’s favor, thanks to the digitization of data. The first such factor is the portability of the product; in other words, the ability of the customer to resell the game. Various media industries deal with this issue in different ways, but always with the goal to limit or eliminate the portability altogether. For example, video companies want to legislate a so-called “broadcast flag”, which will prevent users from storing their recorded shows indefinitely or from allowing anybody else to watch certain shows. On-line music stores, on the other hand, use digital rights management software, which limits the number of copies a user can make, and usually doesn’t allow the user to resell the song to another user. Video game companies could also limit the portability of the games. In some cases, most notably with Valve’s Half Live II, they have already attempted to do so, by forcing the users to register on-line, and selling additional licenses if the user sold the game to another person. When this approach becomes commonplace is still an open question, as there is still a large market of people who aren’t connected to the Internet or are unwilling to have their usually better gaming computer connected to the Internet (I fall into this latter category). The other factor the gaming industry can affect is the game’s life span. This is a delicate balancing act. In some cases, the replay value of games has been so large that all subsequent remakes suffered from their own old predecessors cannibalizing their sales. Such is the case of games like Civilization, Morrowind, Sid Meier’s Pirates! and more. On the other hand, very short life spans can have negative consequences for the given game. This is often the case of recent movie conversions and action games, which can be finished within a few hours. This not only creates negative word of mouth about the game, decreasing the number of people willing to pay the game’s full price, but also makes the game available much sooner on the secondary market. I am not a game designer, so I don’t know where the balance between the two extremes lies, or how to determine it, but I am sure there is one, as several highly successful series, such as Might and Magic, Wizardry and Warlords managed to attract significant demand with their subsequent titles.
All in all, I am not entirely sure how honest the industry is when it whines about second-hand sales of its products. As any other industry, it faces one of the most natural things in a market economy. However, this particular industry has the advantage that its content is digital, thus allowing for the creation of artificial barriers to second-hand trading. I believe that the industry executives work long and hard to find a viable solution, while putting on a sad public face, in order to gain some sympathy and justification for their efforts. Unfortunately for them, the worms have left the can, and the more they’ll try to suppress second-hand trading, the more will they face the problem of backward availability. With software already available to play older games on newer computers, putting any restriction on second-hand sales will just force a larger number of users to look for alternatives, and they’ll discover that they’d be able to play their already purchased older titles on their computers. As a result, even if gaming companies switch to the new paradigm, the number of additional customers they get may disappoint them a little.
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