Tuesday, June 5, 2007

Buy Video Games in November

If you want to save money on your video game purchases, buy used games the first week of November when the prices are the lowest they will be the entire year.

Before I get into any analysis, I want to go over what this graph represents. I randomly chose 50 used video games for PS2, Gamecube, Xbox, and Gameboy Advanced and tracked their prices on a daily basis for the past 18 months. Each price point on the graph represents the average of all 50 games on that particular day. The graph was indexed so January 2nd 2006 is defined as 100% and every other day is a percent of that value. For example, November 4th is 60.3% of the January 2nd price and also happens to be the lowest point of the year. (If you want to know how I get the prices for each of the 50 games read my "How do I get the Prices" post)

The prices throughout the year seem to break up into four distinct groups better illustrated below.

The blue segment is January through the end of May and prices are decreasing for the most part. Yellow is the summer months, June through the end of August and prices are fairly steady during this time period. Then there is a drop in September and October represented by the pink region. And finally a sharp rise in prices starting in November and ending at the end of December shown in green.

I think some major events are responsible for the general trends. Christmas is obviously responsible for the big upswing in the green region. Video game prices increase more than 30% from their November lows to the December peak and this makes sense because everyone and their mother (literally) are buying video games for gifts. The prices in the blue region are the inevitable decline in prices after the Christmas rush is over, but why is there a distinct leveling out of prices starting in June? From my experience and from what the data shows, I think people start buying games again once kids are out of school. I know, I know, they should be playing outside on their bikes, but the prices stop declining right after Memorial Day and stay steady up until Labor Day. I think video games are used as a cheap way to entertain the kids while they are home during the summer. After Labor Day the pink region starts and prices decline again until November when Christmas shopping takes over.

So what can you do with the data? If you get a bunch of games for Christmas that you decide you don't want or you beat in two days and you decide to sell them online. Be sure to sell them as quickly as possible because they depreciate pretty fast. Or if you are looking to buy some used video games as gifts for Christmas or Hanukah, buy them in November. Procrastination will cost you quite a bit of money.

Just as you compare an individual stock's return vs. the SP 500 to know how it behaved relative to the market; I will be using this baseline seasonality graph in all my future posts. Individual games prices will be compared against the overall used game market to see how they compare. I will start using it in my next blog post about Pokemon game prices before and after Pokemon Diamond and Pearl released for DS this past April.

Video Game Price Service Available for Retailers


mndrix said...

Great post. Since the right-hand side of the graph would be the left-hand side of the graph for next year, is it safe to assume that video games depreciate about 20% per year?

JJ Hendricks said...

Yes, prices depreciate about 20% per year for vidoe games on average. Later, I am going to look into games that have increased in value over time. And if there is any trend with why they increased and by how much. Games like Mario Kart 64 and some RPG's seem to increase over time.

Travis Hendricks said...

I bet that huge depriciation in prices right around the beginning of November is due to that looming thought of the Christmas holiday coming up. Every knows they need to start getting some more money from somewhere so they sell all their games and stuff. I would like to see the average price of any product sold on eBay during the year. I bet most products are similar to this graph.

JJ Hendricks said...

I bet you are right. Most consumer products probably follow a trend very similar to the one for video games.

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