Not content to pay any old price for a used game, Kotaku recently attempted to figure out how big stores decide what to charge for old games.
The idea to research the subject of how game resellers priced their titles came after a visit to a local GameStop store. Browsing the used PlayStation 2 section, I came across used copies of Tecmo's Fatal Frame trilogy, which I had long wanted in my collection. I quickly snagged all three, only to be taken aback by the prices.
Though I was standing in front of two bins filled with $.99 to $9.99 PS2 titles, these three games were marked $39.99 apiece. I still walked away with Fatal Frame 2 and 3, both of which were in pristine shape, but it left me curious as to how, out of all the PlayStation 2 titles, GameStop decided to mark these three in particular at price approaching the original manufacturer's suggested retail prices.
I decided to contact various retail and online video game resellers to help shed a little light onto the process behind pricing used titles.
GameStop was not available to comment on this story.
A Secret To Everyone
Upon making my initial inquiries, I found myself repeatedly running into a stumbling block: Secrecy.
Used games are big business. At the core of this business is a simple economic concept -– buy low, sell high. When a new game is released, the price is generally fixed. The profit margin -– the difference between what the retailer pays and what the customer pays -– is relatively low. With a used title, retailers can essentially dictate their own profit margin, as long as customers perceive the value of buying and selling used merchandise at the set prices.
Since new prices are relatively fixed when a game is released, the pricing of used titles is an important weapon in the video game retailer's arsenal. Madden 10 might be the same price everywhere new, but if a customer can get a used copy at one store $5 cheaper than at another, that could be the impetus that drives that customer to return.
With so much riding on used sales, it really isn't a wonder that many companies weren't willing to share such sensitive data with the press. It's not that they don't want the consumer to know as much as they don't want to give the competition a leg up.
Despite this, several retailers did take the time to explain how their specific processes work.
Supply and Demand: It's the Law
Marc Mondhaschen, Director of Used Games at specialty retailer Game Crazy, explained a fundamental economic process behind the pricing of used games.
"Pricing in terms of trade value is all a supply and demand equation," he said. "There are games that are hard to find that don't sell very well, and there are games that are easy to find that sell extremely well."
It's a process you can see in practice at any retail location that deals in used titles, especially around this time of year, when Madden 10 has just hit store shelves. You'll find large numbers of Madden 09 marked down substantially, due to the fact that customers are trading in copies of the game to help finance the latest version. No one wants Madden 09 anymore.
In comparison, look at a game like 2007's Halo 3, which is still one of the most played titles on Xbox Live nearly two years after its release. Being a definitive game on the platform, and one that players are normally reluctant to part with, a used copy is priced at most retailers some $15-20 more than Madden 09.
It's these same supply and demand principles that affect a game's price based on rarity. When Game Crazy sees that a used title is selling out immediately and not many copies are coming in, the price goes up, however some retailers do take at least a cursory look at market-wide rarity when pricing hard-to–find titles.
"The secondary market (eBay) does factor in, just as an idea of what things are going for," explained Daniel Magano, a representative from online retailer e-Starland who spoke to Kotaku regarding his company's used game pricing. "But the main factor is the supply and demand – what we are able to get in."
Algorithms: By the Numbers
It sounds simple, but there's some powerful technology behind many of today's used game retailers' pricing strategies. One word the gets tossed about a great deal is algorithm – a step-by-step mathematical problem-solving procedure, or in layman's terms, number crunching. In the used games business, this means complicated computer software that tracks the various factors involved in order to produce a price for both trade-ins and used sales that makes sense.
Of the companies I spoke to, each had their own proprietary software that aids in setting used game prices. In the case of Wal-Mart's trade-in kiosks, a representative from kiosk operator e-Play explained that their software runs as often as once a day, transmitting new pricing information to participating Wal-Mart locations on a regular basis.
According to a Best Buy PR representative, e-Play is the company behind its trade-in kiosks as well. "Our vendor, ePlay, has set up a formula for trade-in at our kiosks. We also do online trade-in where we have developed a similar formula depending on game and quality of the product."
e-Starland's software is even more impressive, constantly calculating new prices based on the information provided by their website, right down to what product pages customers are visiting.
"We have proprietary software that gauges demand based on a number of factors, based on how many people are looking at the product or are on the "Notify Me" list, and whether we can get in the game. Our prices change all the time…it's something we look at constantly," Magano explains." You can look at our website one minute, and then ten minutes later everything has changed. It's pretty much real-time, dynamic changes."
With the ability to price more freely and the potential for used games to drive both sales and repeat business, it's no wonder that video game retailers are keeping a keen eye on the competition when it comes to setting used game prices.
"We have a 'More for Trades" guarantee, so we have to track what the bad guys (the competition) are pricing their stuff at from a trade perspective," Mondhaschen of Game Crazy said. "That will drive used pricing as well. If we see the bad guys are priced over us on any given trade value, we'll make sure we're trailing either at or over."
According to Mondhaschen, Game Crazy has a team dedicated to keeping track of the competition's prices, but the size of said team and how exactly they operate is a trade secret he could not share.
Competition can also affect used game prices in unexpected ways, as evidenced by the recent showdown in Utah, in which electronics retailer Best Buy began testing a program to price matched new games according to GameStop and Game Crazy's used prices. GameStop responded by significantly slashing used prices at their West Jordan store in what seemed like an attempt to make Best Buy's offer backfire.