Wednesday, October 3, 2012

Used Game Market Increases New Game Sales

A professor at the Stern Business School at NYU has been conducting research in Japan on the effect of the secondary market in video games on new game sales. According to preliminary results from the study, the used game market actually increases sales in the new game market.

In Japan, the predominant location of the secondary market is retail stores (e.g. GameStop-like stores). Online auctions (e.g. eBay) and local swapping (e.g. craigslist) are not popular.

The study finds that new game sales drop rapidly after the initial product launch (Figure 1 Below). The rate of decrease ranges from 5% to 47% per week. For most games the sales of new games has virtually disappeared 6-8 weeks after launch.

In contrast, the used game sales takes off 2-3 weeks after the initial product launch (See Figure 2 below). In the situation the study describes, where the trading is mediated by for-profit retailers (e.g. GameStop), the quantity supply (trade-ins) is constantly greater than the quantity demand (sell-out) for the used games. As a result, the inventory level for the retailer increases monotonically over time.

Based on this statistical analysis, the study then simulates the situation if the secondary market was completely eliminated (Figure 3 below). Because gamers who buy new games no longer have the insurance to sell the game if they decide they don’t like it, they are less willing to take the risk of buying the game new. As a result, the elimination of a secondary market dampens new game sales.

(Note that although the sales increases become positive after week 20, the absolute volume is so small that it doesn’t change overall game sales in any meaningful way. Refer back to Figure 1)

The study was done using weekly sales data released by Famitsu magazine. The dataset covers 4 years but less than 40 titles of games. The low number of titles is due to the magazine only reporting the top 50 games. Once a game dropped out of the top 50 the entire series of data for that game had to be discarded. The 40 games are across multiple platforms including PS2, XBOX and N64. This is a bit of a problem with the study because unit sales are highly dependent on the number of consoles sold.

Even with this smaller sample size and flaws in the study, this study adds some more data to the debate about used games helping or hurting the new game market.

I know of one study being conducted on US data and analyzing all games for a particular console. Hopefully this larger study will be released within the next year so we will have more hard data on the subject.

In the mean time, what do you think? Does the used game market hurt or help the new game market?


Anonymous said...

I know I personally had bought a game used, loved it, and then bought the next one in the series new. And I've done this a few times. It's anecdotal, I know, but still telling.

ccc said...

The sample size is perfect: those consoles sold millions and the top 50 games are perfect for comparison. Excellent sample, great reasoning, and this is fantastic news. I promise the secondary market exists and supports the new market, its economics at work. The secondary market is bigger than the new release (time and scope) but it is a result of the new release market, one feeds the other then the previous feeds the first. Helluva system but ask anyone it works, better than government and its a non-regulated(free enterprise) market :)

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