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

Information Systems Research (Forthcoming)

46 Pages Posted: 18 Nov 2019 Last revised: 2 Mar 2021

See all articles by Antino Kim

Antino Kim

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies

Rajib L. Saha

Indian School of Business (ISB), Hyderabad

Warut Khern-am-nuai

McGill University - Desautels Faculty of Management

Date Written: September 1, 2020

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 since 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 shutdown 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, content, console, platform, durable goods, information goods, used goods

Suggested Citation

Kim, Antino and Saha, Rajib Lochan and Khern-am-nuai, Warut, Manufacturer’s 1-Up from Used Games: Insights from the Secondhand Market for Video Games (September 1, 2020). Information Systems Research (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3487397 or http://dx.doi.org/10.2139/ssrn.3487397

Antino Kim (Contact Author)

Indiana University - Kelley School of Business - Department of Operation & Decision Technologies ( email )

Business 670
1309 E. Tenth Street
Bloomington, IN 47401
United States
812.855.2905 (Phone)

Rajib Lochan Saha

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 111
India

Warut Khern-am-nuai

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
66
Abstract Views
538
rank
399,215
PlumX Metrics