More Evidence: Used Sales Benefit The Primary Market

from the basic-economics dept

Mon, Sep 14th 2009 5:51am — Mike Masnick

We've pointed to research in the past that shows how a robust used goods market boosts the primary market, because the buyers know they'll be able to resell the goods at a later date, if they choose to do so. In other words, it makes the purchase less risky and lowers the bar for making that purchase. Yet, for some reason, many content execs -- especially those in the video game space -- continue to insist that not only are used markets bad for the content creators, but that they're bad for consumers as well. Yet, now there's yet another study showing how a robust used market can be quite helpful to a primary market -- specifically in the video game space. In this case, the research done by Game Crazy found that nearly 20% of sales on primary goods were purchased with dollars from trade-ins:

We did a study not too long ago for a very large vendor who we managed to figure out for them 20 percent of their sales inside the first 28 days were paid for with trade dollars. So you got 20 points of their sales that wouldn't happen unless we had a trade business going. And that's specialty retail. Game specialty retail is maybe a third of the channel, 35 percent of the channel. So you got 10 percent of your sales that wouldn't happen unless somebody was out there trading games with your customers.

Now, you could argue that the source is biased, but at least this is one more suggestion of how a used market can help improve the primary market.

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Filed Under: primary market, used goods, video games

16 Comments

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Ima Fish (profile), 14 Sep 2009 @ 5:58am

I know it's fun to argue the facts. But it simply does not matter whether the used game market benefits the new game market or not. It is a simple fact of logic that the used game market in no way harms the new game market.
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Anonymous Coward, 14 Sep 2009 @ 6:23am

I'm shocked no one saw the attack on used goods coming, after all it results in lost sales in much the same way as 'piracy' does.(the difference being only one user/group of users could use the software/movie/whatever at a time)
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OC, 14 Sep 2009 @ 6:43am

proof?
I happen to agree with you that reselling goods benefit the primary market but I jumped at the following quote:

"So you got 20 points of their sales that wouldn't happen unless we had a trade business going"

I can't read the article from work so I have to ask, is there any proof that those 20% would not have been bought anyway? If not, the whole conclusion is flawed.
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Richard, 14 Sep 2009 @ 7:01am

Re: proof?
I can't read the article from work so I have to ask, is there any proof that those 20% would not have been bought anyway? If not, the whole conclusion is flawed.

Well to make the conclusion flawed you would have to establish that the whole 20% would have been bought anyway. The conclusion only requires a marginally positive value.
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ethorad, 14 Sep 2009 @ 7:08am

other secondary markets?
Perhaps someone should ask these content execs if other secondary market should also be banned.

Wonder how interested they'd be in continuing to get stock options if there was no secondary market enabling them to sell their stock? I bet they'd rather have the cash, thus proving that they value something with no secondary market much less.

A massive reason why people are willing to buy equity, and thus a massive reason why companies (including content plc) are able to raise capital, is investors have access to a secondary market. If investors were locked into their investments for life you'd find a lot less people willing to pony up for equity.
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Josh, 14 Sep 2009 @ 7:15am

Missing Stat
This just doesn't matter though since it is not the real concern of the people selling games. Sure, if your customers didn't get the chance to trade in games then you might not get the 10% to 20% of sales mentioned (if in fact the consumers using the credit would only do so with the ability to trade in). The other part of this equation is the ratio for any particular title of new sales to used sales. If the sum of lost revenue to a title from resale is higher than the 10% to 20% of sales from trade in then it is clear the primary market is hurt. I can see this increasing the launch sales of a title and then hurting sales after the launch when more used copies are available.
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Lucretious, 14 Sep 2009 @ 7:16am

I've got no great love for the brick-and-mortar game outlets but seeing that the profit margins on new retail games is nearly non-existent, they (stores) have little choice.
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chris (profile), 14 Sep 2009 @ 8:09am

meh. used games are a thing of the past
so sayeth penny arcade:
http://www.penny-arcade.com/comic/2007/3/30/

this generation of consoles may very well be the last for games on physical media and at that point there will be no used games. steam, greenhouse, live arcade, etc. can distribute games without media, making a used market impossible.

so while it's great that used CD's, games, dvd's and whatnot are great or at least non-harful, it won't matter much since digital delivery will make physical media obsolete.
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Muliadi Jeo, 14 Sep 2009 @ 8:25am

"because the buyers know they'll be able to resell the goods at a later date, if they choose to do so. In other words, it makes the purchase less risky and lowers the bar for making that purchase." -- I completely agree with that statement. In the marketplace (any type of goods), there are always people that love to get new stuff, try the latest stuff. With the help of a healthy "pre-owned" market, it helps to ensure these people to spend and that will benefit the primary market. For example, in Indonesia, a country that an average people salary is not much, the mobile phone industry there is much stronger than here in the United States. People keep buying new hand phones even though there is no subsidy from the phone company. How can they afford? Mostly because there is a very healthy second hand market for mobile phones. This keeps the trdaing fluid between both between the primary and the secondary market.
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TheStupidOne, 14 Sep 2009 @ 8:26am

Why You Buy Used
I just bought a PS3 after the most recent price drop. I bought a mix of new and used games. For the new games, I bought ones that I knew I would enjoy and want to own. For games that were suggested to me by a friend who's taste I'm not as sure about I bought used because it is cheaper and I can get most of my money back if I want to.

Also, new games let buyers (like me) jump in and try a game maker before passing judgment on them. If I buy a two year old game and love it and then see a game by the same group coming out I'll probably buy it.
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Anonymous Coward, 14 Sep 2009 @ 8:26am

@Chris: you assume that most people will use digital stores to acquire game licenses. Customers will still want physical media so they can have the illusion of ownership. Also larger games will require so much bandwidth that downloading them may be impractical for some people.(thus abandoning retail would be flushing money down the toilet)
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Griff (profile), 14 Sep 2009 @ 9:13am

Take cars as an example
The people who want a £20K new car want the latest greatest stuff (performance, economy whatever).

People who like to pay half that can buy a 2-3 year old car with a transferrable warranty, thus making it possible for the people buying new.

The people who (like me) have never spent more than 5K on a car, enable these "2-3 year old" people to exist.

Would Ford benefit from banning car resale ?
No, because either
- New owners would have less to spend
- New owners would own cars till they were far older and hence buy cars less often.

But music is different because noone in their right minds believes that the seller of a used CD didn't keep a copy for himself on hard drive...
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Anonymous Coward, 14 Sep 2009 @ 9:21am

Price discrimination
Looking only at that 20% is deceptive because the used market surely cannibalizes some of the new sales. For example, a person might wait and buy a used copy instead of a new copy. So the used market is funding 20% of new purchases, but may be losing 25% of sales to people who wait for used purchases. If this were true, the used market would be a detriment.

While I think this is what the game companies fear, I don't think the secondary market is bad. It actually allows companies to practice price discrimination. The people who wait and buy used probably wouldn't have bought at all because the game is not that interesting. This ultimately makes the market more efficient by allowing more people to enter the market.

Thus, I think the secondary market is good but the reasons noted in the post are only one piece of the puzzle.
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fogbugzd, 14 Sep 2009 @ 9:40am

Two reasons execs whine about used game sales
Reason 1: Their bonuses are based on the short term. The long-term health of the industry isn't as important as this year's balance sheet. At least some of the benefits of used games are long term, and therefore irrelevant.

Reason 2: Superficially it makes sense, and if you want an excuse to give to stockholders then superficial is usually enough. At this point the execs have been whining about used sales long enough that they have to stick with the story. Some of them may have repeated the story often enough that they actually believe it. As long as congress doesn't outlaw used sales they can keep using this as an excuse.
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Alan Gerow (profile), 14 Sep 2009 @ 10:29am

Re: proof?
If $1 was gained from trade-ins that would have not be bought with cash, then the whole conclusion is not flawed.

In relation to the RIAA & other trade industry groups, they are arguing a level of scale, that piracy is causing $X of damages, and as a result needs government intervention. In that regard, the value of $X is very important, because $1 lost in sales vs $1,000,000,000 lost in sales paints a very different picture of piracy. And the lobbyist groups are using inflated numbers to get legislation passed by leveraging emotions tied to their questionable numbers.

Whereas the argument in this story is simply that there is benefit to a secondary (used) market, in which case the amount of increased sales is secondary to the existence of secondary sales. So, whether it is $1 of trade-ins vs $1,000,000,000 is irrelevant, because both are support for the idea that a secondary market helps the primary market.

So, the specific number of 20% is not what is most important, but as long as it is >0%. We can argue whether or not in the absence of a secondary market it would have been unchanged, but to argue the specific number is moot beyond simply being accurate.
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Carolyn Jewel, 14 Sep 2009 @ 2:38pm

What's the big deal?
In the book world, used books are known to lead to sales of new books. Readers are generally wary about spending money on an unknown-to-them author, so they (wisely, I think) buy a used copy of a backlist title. Authors (myself included) routinely hear from readers who became fans in this manner. Perhaps more to the point, I know readers who sell their used books to fund purchases of new books.

This is nothing new and I'm a little mystified, though not surprised, that software vendors think this is a problem. If I'm done with a book and don't care to keep it to re-read later, I have the right to re-sell it or trade it in. And then I can buy shiny new books. I would think the same would be true of games.
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