Why sales of used games are a problem

A few days ago industry analyst Michael Pachter said the following:

The number of games traded annually is striking; we estimate the overall used game market to be $2 billion in the U.S., with an average ticket of around $20 per used game. This means that an estimated 100 million units of used games are traded in each year, representing around 1/3 of all games sold annually.

Blimey! That’s a lot of money, and what’s worse it’s money that goes directly into the pockets of retailers, you know the people who do not fund the development of games, and do not take any risks. So clearly this is a problem right? I mean the industry would be far better off if those $2 billion went into further development of games instead, right? Well here’s where the logic gets a bit convoluted:

[W]e think that used game sales benefit new game sales by providing currency to gamers with less disposable income, thereby enabling the purchase of additional games

Yes, the people who sell their games may use that money to buy more games, and indeed the ability to re-sell a game may make it more likely that you would buy a game in the first place (as it effectively lowers the price; $60 bucks minus $30 resale value = $30 effective price). All this is completely irrelevant though. Increased numbers of sales mean nothing unless the profit from those sales make it back into development, which, when they come from used sales, they don’t. That currency doesn’t come from thin air, it’s effectively drawn from the developers as it’s “produced” by the retailers selling the same game multiple times but only giving a cut to the developers once.

Pachter seems to think that used sales and new sales are somehow two distinct markets that are not in competition, but this is clearly ridiculous. The consumer doesn’t go out with the intention of buying specifically a used game because the property of being used has some inherent value! Buying a used game is a compromise that he is willing to do because it saves him money. So in other words, the consumer is prepared to spend X dollars per year for N games. That’s all he cares about. All the talk about “providing currency” etc. is just noise, the basic fact is that consumers are prepared to spend X dollars for N games. Used game sales act to bring down the “effective price” of the games, but that’s the extent of their influence on this equation. If we somehow could eliminate used sales (e.g. through digital distribution) and adjust pricing to get the same effective prices, then X and N can remain exactly the same, but with one big difference – the developers will get a cut of all of X, rather than just X - $2 billion like now. More money for developers mean fewer closed development studio and just generally lower risks developing games, which means fewer sequels and more innovation – good stuff for everyone involved.