Game Blog: Opportunity Cost Of Collecting

The P-Cult is CulturePopTV.com’s Business Editor and op-ed columnist. In his installment series, “The Business of Collecting,” he offers business insights for pop culture events, collector markets and relevant industry and sector analysis.

The P-Cult also currently works as an advisory consultant, focusing on finance and accounting process improvement and business strategy within the retail and consumer products sector. He has worked for three of the top four consulting firms in the world and maintains several professional certifications.

The P-Cult holds three degrees in accounting, corporate finance and accountancy.


In a time before steelbooks, slip covers, and box sets, I had a very small DVD collection. Back then, it was more about the actual film than the way it looked on a shelf. One day after an especially enlightening high-school accounting class, I sold off my entire collection. Why? The reason is because keeping it was costing me money.

You may be asking, “How do DVDs cost you money, after you’ve already bought them?” The answer is opportunity cost: what someone sacrifices when they select one option over another. Even if an option isn’t pursued, there’s still an associated cost.

Let me explain. I had several movies that I wasn’t watching. One of which was the Thomas Crown Affair. When I had originally purchased it new, I paid $20. After learning about opportunity cost, I looked up its selling price on half.com, and saw that it was going for $8 used.

You might think that if I sold it, I’d be losing $12, but this number doesn’t really have any importance. No matter what the decision (keep or sell), I’ve already lost the $12. The reason is because keeping the movie doesn’t bring the value back up. In fact, the movie will only continue to decrease. The only number that matters, is the amount that I could get for selling it. So, if I kept it, I’d actually be sacrificing $8.

“The only number that matters, is the amount that I could get for selling it.”

You see, I could have been using that $8 to buy another DVD. Instead, I had that money parked in the Thomas Crown Affair, which wasn’t getting watched and continuing to lose value. Eventually, it would probably worth next to nothing. So I sold it, along with the rest of my DVDs.

I realize that selling off an entire collection is a bit extreme. If you’re collecting for the right reasons, the value of your collectibles should be intrinsic. What this means, is that you judge items by their perceived value to you, as the collector, instead of their actual market value. However, we can use opportunity cost as a rationale for trading-in games and movies.

“[J]udge items by their perceived value to you, as the collector, instead of their actual market value.”

We all tend to cringe when we ask for quotes on trade-ins. That’s because we think that the amount that we’re quoted isn’t what the item’s really worth. Resellers can’t pay you what your game or movie is typically going for because that’s what the store sells it at. Obviously they can’t work for free, so they’re forced to offer a lower price to buy your item.

Typically, when resellers quote you a price, they start at market value, take off a certain percentage for overhead costs and fees, then back out what they want to realize in profits. This brings the reseller to a price that represents what the item is worth to them. Most people understand this process, but are reluctant to sell because of low prices. Well, be reluctant no more!

A new copy of the popular PS3 game, Watch Dogs, currently sells at $40. Let’s say, you’ve purchased the game at that price; you’ve played the hell out of it, but thought that there wasn’t much replay-ability. What are your options? Well, you can keep it, or sell it/trade it in.  If you take it to GameStop, you would be offered $11 in store credit (as of 2/26/15),  which is less than 28% of what you paid. However, if you think back to the opportunity cost example that I had mentioned earlier, you would understand that the only relevant number here is $11. In other words, if you keep the game, its essentially costing you $11 (the amount you’re sacrificing, which could be used to buy other games).

So, now the question is, do you trade it in? Well, that’s up to you. If you think leaving it on your shelf is worth $11, then keep it. If not, trade it in, but hurry. The longer you keep the game, the lower the trade-in value becomes.

-The P-Cult

 


 

You can contact The P-Cult with further questions or comments at thepcult@gmail.com. Also, don’t forget to check back at CulturePopTV.com for the next installment in The Business of Collecting.