Manufacturer’s 1-Up from Used Games: Insights from the Secondhand Market for Video Games

Kim, A and Saha, R L and Khern-am-nuai, W (2020) Manufacturer’s 1-Up from Used Games: Insights from the Secondhand Market for Video Games. Working Paper. SSRN.

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In contrast to industries of other types of information goods, the video game industry still has a sizable secondhand market for games. This is particularly notable since some of the major gaming-console companies (e.g., Sony and Microsoft) actually possess the ability to annihilate the secondhand market altogether; it appears that those companies have given tacit approval to buying and selling used games. Naturally, the question is, what is the special ingredient in the gaming industry that gives a manufacturer incentive to keep a healthy secondhand market even when it has the technological means to shut it down? In this study, leveraging a game-theoretic model, we investigate the effect of gaming console on a manufacturer's strategy in the presence of a secondhand market for games. We find that, when the manufacturer offers a valuable console that provides utilities in addition to playing games, the secondhand market increases the manufacturer's profit, and that is not at the cost of consumers; the consumers—as well as the society as a whole—also benefit from the secondhand market. This is in stark contrast with settings where there are no consoles involved or the consoles do not offer any intrinsic value; in such settings, the manufacturer would opt to shutdown the secondhand market. In the case with a valuable console, however, the increasing appeal of the secondhand market to consumers may improve the manufacturer's profit, consumer surplus, and social welfare, all at the same time. We discuss our findings along with managerial and welfare implications.

Affiliation: Indian School of Business
ISB Creiators:
ISB Creators
Saha, R L
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Secondhand Market, Video Game, Content, Console, Platform, Durable Goods, Information Goods, Used Goods
Subjects: Information Systems
Depositing User: Gurusrinivasan K
Date Deposited: 17 May 2021 14:39
Last Modified: 17 May 2021 14:39
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