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

Antino Kim (), Rajib L. Saha () and Warut Khern-am-nuai ()
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Antino Kim: Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Rajib L. Saha: Indian School of Business, Hyderabad 500111, Telangana, India
Warut Khern-am-nuai: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada

Information Systems Research, 2021, vol. 32, issue 4, 1173-1191

Abstract: 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 because 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 shut down 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.

Keywords: secondhand market; video game; console; content; platform; durable goods; information goods; used goods (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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