Manufacturer’s “1-Up” from Used Games: Insights from the Secondhand Market for Video Games
By Antino Kim, Rajib Saha, Warut Khern-am-nuai
Information Systems Research | December 2021
DOI
doi.org/10.1287/isre.2021.1023
Citation
Kim, Antino., Saha, Rajib., Khern-am-nuai, Warut. (2020). Manufacturer’s “1-Up” from Used Games: Insights from the Secondhand Market for Video Games Information Systems Research doi.org/10.1287/isre.2021.1023.
Copyright
Information Systems Research, 2020
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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.

Rajib Saha is an Associate Professor of Information Systems at the Indian School of Business (ISB). He works broadly in the areas of Economics of IT and IT-enabled business models and data mining. His research explores questions related to crowds and platforms, pricing and operationalisation of digital goods, B2B contracts, network analytics, and more.

Prior to joining ISB, he taught graduate-level courses in the area of Operations Management and Information Systems at the University of Rochester, and worked in the IT industry for several years at organisations such as Oracle and Novell.

Professor Saha received his MS and PhD in Business Administration from the University of Rochester, New York and B.Tech. in Computer Science and Engineering from the Indian Institute of Technology, Kharagpur.

Rajib Saha
Rajib Saha